Question

During the course of a year, the labor force consists of the same 6,000 people. Employers have chosen not to hire 420 of these people in the face of government regulation making it too costly to employ them. Hence, they remain unemployed throughout the year. At the same time, 300 different people are always unemployed due to job changes each month during the year. There is no seasonal employment.
A. What is the frictional unemployment rate?
B. What is the overall unemployment rate?

Answer 1

Answer:

5%

12%

Explanation:

Unemployment rate is the fraction of the labour force that are unemployed but are actively looking for work

Types of unemployment include:

Frictional unemployment : it is the period of time a person is unemployed from the period he leaves his current job and the time he gets another job. The 300 unemployed people are frictionally unemployed

structural unemployment : it occurs as a result of changes in the economy. These changes can be as a result of changes in technology, polices or competition . Structural unemployment tends to be permanent. The 420 unemployed people are structurally unemployed

Voluntary unemployment : e.g. worker at a fast-food restaurant who quits work and attends college.

Cyclical unemployment : occurs as a result of fluctuations in the economy

Frictional unemployment = (total frictional unemployed people / total labour force ) x 100

(300 / 6000) x 100 = 5%

Total unemployment rate = (total frictional unemployed people + total structural unemployed individuals / total labour force ) x 100

[(300 + 420) / 6000] x 100 = 12%