Question

1. Define labor force participation rate and list three reasons that causes an increase in the female labor force participation rate.
2. Discuss the causes and consequences for frictional unemployment.

Answer 1

Labour force participation rate is defined as the section of the working population in the age group of 16-64 in the economy currently employed or seeking employment.

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The three reasons that cause an increase in the female labor force participation rate are as follows:

1) Increase in the education level of the adult female population

2) Promotion of equity in payment and job status between males and females

3) Economic development

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Frictional unemployment is a type of unemployment that arises when workers are searching for new jobs or are transitioning from one job to another.

Causes of frictional unemployment -

1) mismatch between the workers and available jobs

2) Workers’ dissatisfaction with existing and prospective work conditions

3) Creative destruction represents the process in which new discoveries give rise to new products and industries which require new skills and eliminating others. Declining industries lay off workers and new industries hire them but often there exists a considerable mismatch between skills valued in the old industries and the new.

4) People may migrate from one city to another due to a number of reasons such as climate, family, etc. Since most of the jobs are location-specific, they resign and try to find new jobs in their new home

5) Employment insurance represents the support payments paid by governments to unemployment. It tends to increase frictional unemployment because it reduces economic hardship for unemployment and allows them flexibility in trying to find a better job

6) Fearing creative destruction and sectoral shift, some people may resign their jobs in an attempt to update and renew their skills for the impending change in the structure of the economy

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Consequences of frictional unemployment -

1) It provides businesses within the economy with a larger selection of human capital, with which they can gain access to more qualified employees.

2) an increasing frustration among job-seekers that can lead to a decrease in productivity.

3) cause households with limited savings to fall behind bill payments and end up in more debt.

4) If it exists for a long time, it may lead to increased drop-outs of the labor force