Chapter 5. Unemployment



  1. What is the difference between being unemployed and being out of the labor force?
  2. How do you calculate the unemployment rate? How do you calculate the labor force participation rate?
  3. If you are out of school but working part time, are you considered employed or unemployed in U.S. labor statistics? If you are a full time student and working 12 hours a week at the college cafeteria are you considered employed or not in the labor force? If you are a senior citizen who is collecting social security and a pension and working as a greeter at Walmart are you considered employed or not in the labor force?
  4. What happens to the unemployment rate when unemployed workers are reclassified as discouraged workers?
  5. What are some of the problems with using the unemployment rate as an accurate measure of overall joblessness?
  6. What criteria do the Bureau of Labor Statistic (BLS) use to count someone as employed? As unemployed?
  7. Using the definition of the unemployment rate, is an increase in the unemployment rate necessarily a bad thing for a nation?
  8. Is a decrease in the unemployment rate necessarily a good thing for a nation? Explain.
  9. A country with a population of eight million adults has five million employed, 500,000 unemployed, and the rest of the adult population is out of the labor force. What’s the unemployment rate? What is the labor force participation rate?
  10. Are U.S. unemployment rates typically higher, lower, or about the same as unemployment rates in other high-income countries?
  11. Are U.S. unemployment rates distributed evenly across the population? What groups tend to have lower unemployment rates? What groups tend to experience higher unemployment rates?
  12. Is the higher unemployment rates for minority workers necessarily an indication of discrimination? What could be some other reasons for the higher unemployment rate?
  13. While unemployment is highly negatively correlated with the level of economic activity, in the real world it responds with a lag. In other words, firms do not immediately lay off workers in response to a sales decline. They wait a while before responding. Similarly, firms do not immediately hire workers when sales pick up. What do you think accounts for the lag in response time?
  14. When would you expect cyclical unemployment to be rising? Falling?
  15. Name and explain some of the reasons why wages are likely to be sticky, especially in downward adjustments.
  16. What term describes the remaining level of unemployment that occurs even when the economy is healthy?
  17. Would you expect the natural rate of unemployment to be roughly the same in different countries?
  18. Would you expect the natural rate of unemployment to remain the same within one country over the long run of several decades?
  19. What is frictional unemployment? Give examples of frictional unemployment.
  20. What is structural unemployment? Give examples of structural unemployment.
  21. After several years of economic growth, would you expect the unemployment in an economy to be mainly cyclical or mainly due to the natural rate of unemployment? Why?
  22. Under what condition would an increase in the unemployment rate be a positive sign?
  23. As the baby boom generation retires, the ratio of retirees to workers will increase noticeably. How will this affect the Social Security program? How will this affect the standard of living of the average American?
  24. Unemployment rates have been higher in many European countries in recent decades than in the United States. Is the main reason for this long-term difference in unemployment rates more likely to be cyclical unemployment or the natural rate of unemployment? Explain briefly.
  25. Is it desirable to pursue a goal of zero unemployment? Why or why not?
  26. As the baby boomer generation retires, what should happen to wages and employment? Can you show this graphically? Which curve would be shifting in the US labor market?
  27. MATH problem: use the data provided to calculate the Labor Force Participation Rate and the Unemployment Rate. 
    Table 5.6 Labor Force Data
    Population 16 and Older 218 million
    Labor Force 133 million
    Employed  117 million
    Discouraged Workers 16 million
  28. Identify what type of unemployment (cyclical, frictional, or structural) applies to each of the following:
    a. landscapers laid off in response to a drop in new housing construction during a recession
    b. coal miners laid off due to EPA regulations that shut down coal fired power
    c. restaurant and hotel workers in Hawaii who lost their jobs during the second half of 2020
    d. an elementary school teacher who quits his/her job in Hawaii and is pursuing a new teaching job in Nevada
    e. printers laid off due to a drop in demand for printed catalogs and flyers as firms go to the internet to promote and advertise their products.
    f. factory workers in the U.S. were laid off as the plants shut down and move to Mexico and Ireland.
  29. Assess whether each of the following would be counted as “unemployed” in the Current Employment Statistics survey.
  1. A husband willingly stays home with children while his wife works.
  2. A manufacturing worker whose factory just closed down.
  3. A college student doing an unpaid summer internship.
  4. A retiree.
  5. Someone who has been out of work for two years but keeps looking for a job.
  6. Someone who has been out of work for two months but isn’t looking for a job.
  7. Someone who hates her present job and is actively looking for another one.
  8. Someone who decides to take a part-time job because she could not find a full-time position.


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UH Macroeconomics 2022 Copyright © by Terianne Brown and Cynthia Foreman is licensed under a Creative Commons Attribution 4.0 International License, except where otherwise noted.

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