Question

Question 3 35 pts Utilize the following information: (thousands) May 2012 June 2012 Labor Force 100,000 Number Unemployed: 5,000 Labor Force: 103,000 Number Unemployed: 7,000 Number Employed: 96,000 Civilian non-institutional population: 150,100 Number Employed: 95,000 Civilian non-institutional population. 150,000 Questions: 1) How did the unemployment rate change between May and June of 2019? 2) Why might the change in the unemployment rate between May and June of 2019 be a misleading gauge of the health of the labor market? 3) What other labor market data points should an economist look at to properly gauge the health of the labor market? Why are these alternative labor market data points more useful in June 2019, and why are they useful in general?

Answer 1

1.

May:

Unemployment rate = (U / LF) × 100

                                    = (5,000 / 100,000) × 100

                                    = 500 / 100

                                    = 5%

June:

Unemployment rate = (U / LF) × 100

                                    = (7,000 / 103,000) × 100

                                    = 700 / 103

                                    = 6.80%

Answer: unemployment rate increases between the months, since 6.80% is higher than 5% rate.

2.

This change is truly misleading, since the cause of such change is not really clear. Both numerator (5,000 to 7,000) and denominator (100,000 to 103,000) have increased, but how this increase appears when total population increases only 100, as it is increased from 150,000 to 150,100.

It seems that discouraged and underemployed workers who were not there in 5% rate may be included as unemployed for the calculation of 6.80% rate, making the rate higher.

3.

1^st part:

An economist should look into overall labor force participation rate, which is the ratio of labor force and total population, number of discouraged workers, and the number of underemployed workers.

2^nd part:

These are useful data for the month of June, since the reason of increasing the unemployment rate has to be searched.

3^rd part:

These are useful, because by excluding the data of discouraged and underemployed workers the unemployment rate would be low (as it is considered as U-3 unemployment rate); but once these are included, the rate would be high (as it is U-6 unemployment). These give the idea of types of unemployment.