Question

During the course of a year, the labour force consists of the same 1,000 people. Employers have chosen not to hire 20 of these people in the face of government regulations making it too costly to employ them. Hence, they remain unemployed throughout the year. At the same time, every month during the year, 30 different people become unemployed, and 30 other different people who were unemployed find jobs.

a. What is the frictional unemployment rate?

b. What is the unemployment rate?

c. Suppose that a system of unemployment compensation is established. Each month, 30 new people (not including the 20 that employers have chosen not to employ) continue to become unemployed, but each monthly group of newly unemployed now takes two months to find a job. After this change, what is the frictional unemployment rate?

d. After the change discussed in part (c), what is the unemployment rate?

Short answer

a. frictional unemployment rate is$3\%$

b. the unemployment rate is$5\%$

c. the frictional unemployment rate is $6\%$

d. the unemployment rate is$8\%$

Step-by-step solution

introduction

The general unemployment rate is the number of jobless individuals isolated by the complete number of individuals in the workforce. Frictional unemployment is when individuals change tasks to get a superior one.

explanation part (a)

We know,

frictional unemployment rate =$\frac{\text{numberofunemployedpeople}}{\text{Total Labour Force}}\times 100$

$$\begin{gathered} =\frac{30}{1000}\times 100 \\ =3\% \end{gathered}$$

part (b)

we know,

unemployment rate = $\frac{numberofunemployedpeople}{taotallabourforce}\times 100$

role="math" localid="1651575463725" $$\begin{gathered} =\frac{50}{1000}\times 100 \\ =5\% \end{gathered}$$

part (c)

If each month, 30 new people continue to become unemployed, but each monthly group of newly unemployed now takes two months to find a job then,

$\text{frictional unemployment rate}=\frac{\text{number of unemployed people}}{\text{Total Labour Force}}\times 100$

$$\begin{gathered} =\frac{60}{1000}\times 100 \\ =6\% \end{gathered}$$

part (d)

After the change discussed in part (c), the unemployment rate is,

$$\begin{gathered} \Rightarrow \frac{80}{1000}\times 100 \\ =8\% \end{gathered}$$