Reference no: EM13761940

The Two Ways Unemployment Rate can Decrease

Every First Friday of the Month, the Bureau of labor Statistics releases report about last month's unemployment statistics. Therefore, the first week of July statistics for the month of June will become available.

Consider an economy with the following structure of population (I am using hypothetical numbers):

Labor force = 100 people, 80 employed, 20 = unemployed. Not in the labor force = 25
Therefore, unemployment rate = unemployed/ labor force = 20/100 = 20%


Now, consider the two possible scenarios presented below:

Scenario 1) 10 people find jobs, what is going to happen to the unemployment rate?

People in Labor force - still 100, People not in the labor force - is still 25; new unemployed = 10, employed 90 (because 10 people found jobs). Therefore, the new unemployment rate = 10/100 = 10%

So finding jobs will make the unemployment rate fall

No try this:

Scenario 2) 10 people give up looking for work: what is going to happened to the unemployment rate?

10 people now become discouraged workers, they are no longer considered to be in the Labor Force, so Labor force = 90, Not in labor force 35, unemployed = 10. Employed = 80.

Unemployment rate = unemployed/ labor force = 10/90 =11% - another way to make the unemployment rate can fall.

One way to reduce unemployment rate is to find a job, the other is to stop looking.

Those who gave up are not included in labor force. It is easy to hide those people when you take them out of unemployed but it doesn't make the problem go away.

Navigation: Access the BLS Economics News Release: Employment Situation Summary Table A. Household data, seasonally adjusted

Question: Given what you have learned about two different ways that the unemployment rate can fall, provide an explanation of the decrease in the unemployment rate from 5.5 to 5.4 percent from March to April 2015
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