Question

Suppose that a nation has a labour force of 100 people. In January, Amy, Barbara, Carine, and Denise are unemployed. In February, those four find jobs, but Evan, Francesco, George, and Horatio become unemployed. Suppose further that every month, the previous four who were unemployed find jobs and four different people become unemployed. Throughout the year, however, three people-Ito, Jack, and Kelleycontinually remain unemployed because firms facing government regulations view them as too costly to employ.

a. What is this nation's frictional unemployment rate?

b. What is its structural unemployment rate?

c. What is its unemployment rate?

Short answer

a. nation's frictional unemployment rate is$4\%$

b. structural unemployment rate is$3\%$

c. unemployment rate$7\%$

Step-by-step solution

introduction

Unemployment is of three main types- frictional, structural and cyclical.

explanation part (a)

Nation's frictional unemployment rate =

$$\begin{gathered} =\frac{\text{Numberofunemployedpeople}}{\text{Total labour Force}}\times 100 \\ =\frac{4}{100}\times 100=4\% \end{gathered}$$

part (b)

Structural unemployment rate =

$$\begin{gathered} =\frac{\text{workersunsuitable for Job}}{\text{Total labour Force}}\times 100 \\ \Rightarrow \frac{3}{100}\times 100=3\% \end{gathered}$$

part (c)

Calculating the unemployment rate

= frictional unemployment $+$structural unemployment

$$\begin{gathered} =4+3 \\ =7\% \end{gathered}$$