Question

Microeconomics

5. Hiring Rise Sends U.S. Jobless Rate to a 10-Year Low The U.S, unemployment rate fell to 4.4 percent. There was also a drop in the numbers of discour- aged workers, which lowered a broader measure of unemployment that includes this category Source: The New York Times, May 6, 2017 What is a discouraged worker? Explain how a decrease in discouraged workers influences the official unemployment rate and a broader measure. What is the broader measure?

Answer 1

WHAT IS DISCOURAGED WORKERS?

Discouraged workers are the workers who are able to work effieciently and who are eligible for employement but are curretnly unemployed and are searching for jobs sometimes in the past year, but not in the past four weeks (or a month).

They are dropped out of the labor force as they believe there are no jobs available for them.  

Discouraged workers have usually given up on searching for a job as they find no other employement options and if they find a job they get lack of success in it.

Decrease in discouraged workers influence the official unemployment

The discouraged worker effect will impact the official
unemployment rate in an interesting way. The labor force is defined the total number of people who are eligible to work (including employed and unemployed people).

Labour force = Total no. of employed workers + total no. of unemployed workers
The unemployment rate is defined percentage of unemployed workers in the total labor force.

If an unemployed worker becomes discouraged, they exit both the numerator and denominator of that calculation, and the unemployment rate falls, even though the labor market may be getting worse.

The decrease in the discouraged workers will enormously decrease the official unemployment rate. The decrease in the unemployment rate for a country will reduce its proverty rate.

Decrease in discouraged workers will also improve the economy of the country. As the economy improves, and more jobs become available, discouraged workers generally try to return to the work force.

An increase in the number of discouraged workers will reduce the unemployment rate since the unemployment rate is defined as the (number of unemployed divided by the number in the labor force)*100: when discouraged workers increase this causes both the denominator and the numerator to change, but the decrease in the numerator has a larger impact than the decrease in the denominator resulting in the overall ratio falling. The labor force participation rate decreases when the number of discouraged workers increases because the measure of the labor force is smaller (recall that the measure of the labor force is the sum of the employed plus the unemployed) while the total adult civilian population is unchanged. Hence, the labor force participation rate = (labor force/total adult civilian population)*100 is now smaller.

WHAT IS THE BROADER MEASURE?

In broder measure we can say that this trend of decrease in discouraged workers continues then the rate of unemployment will reduce at a steady rate and ultimately will be beneficial for the economy in long run.

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