The table below shows labor market statistics for a nation. Number of Workers Structurally Unemployed Number of Workers Cyclically Unemployed Number of Workers Frictionally Unemployed Number of Workers Officially Classified as Employed Working-age Population 3 million 4 million 2 million 91 million 150 million Based on the above table which of the following is most likely correct? a. The natural rate of unemployment is 5 percent. b. The labor force participation rate is 91 percent. c. There are 95 million people in the labor force d. Discouraged workers are 4 percent of the labor force.
The Correct Answer and Explanation is :
Let’s analyze the labor market statistics provided in the table and evaluate each option:
Given Data:
- Structurally Unemployed: 3 million
- Cyclically Unemployed: 4 million
- Frictionally Unemployed: 2 million
- Officially Classified as Employed: 91 million
- Working-age Population: 150 million
Key Terms:
- Labor Force: This includes all individuals who are employed or actively seeking work. The labor force is the sum of the officially employed and the unemployed.
- Natural Rate of Unemployment: The natural rate of unemployment consists of structural and frictional unemployment, excluding cyclical unemployment (which fluctuates with the business cycle).
- Labor Force Participation Rate: This is the percentage of the working-age population that is either employed or actively looking for work.
- Discouraged Workers: These are individuals who have given up searching for work and are not actively looking, thus not counted as part of the labor force.
Step-by-Step Analysis:
- Option a: The natural rate of unemployment is 5 percent.
- Natural Rate of Unemployment = (Structural Unemployment + Frictional Unemployment) / Labor Force
- Natural Rate = (3 million + 2 million) / (91 million employed + 9 million unemployed) = 5 million / 100 million = 5%.
- This is correct.
- Option b: The labor force participation rate is 91 percent.
- Labor Force Participation Rate = (Labor Force / Working-age Population) * 100
- Labor Force = Employed + Unemployed = 91 million + 9 million = 100 million
- Labor Force Participation Rate = (100 million / 150 million) * 100 = 66.67%.
- This is incorrect.
- Option c: There are 95 million people in the labor force.
- The labor force is 100 million, not 95 million.
- This is incorrect.
- Option d: Discouraged workers are 4 percent of the labor force.
- We do not have data on discouraged workers, but typically, discouraged workers are not counted in the labor force. Since the total labor force is 100 million, we can’t accurately calculate discouraged workers from the given data.
- This is incorrect.
Correct Answer:
The correct answer is a. The natural rate of unemployment is 5 percent.