Question

2. The goal of studying and recording the unemployment rate is to learn something about the state of the economy. Explain why each of the following makes the unemployment rate a better or worse indicator of how healthy the economy is.

A. If people in the military aren't included in the labor force, does the unemployment rate become a better or worse indicator of the state of the economy?

B. If discouraged workers aren't counted in the labor force, does the unemployment rate become a better or worse indicator of the state of the economy?

C. If part-time workers are treated exactly like full-time workers, does the unemployment rate become a better or worse indicator of the state of the economy?

Answer 1

A. During world war 2, 16 million Americans served in the military, around 11% of the population at the time. The economy before the war was going through the Great Depression, but the war effort brought the nation out of the depression and put more people to work. The unemployment rate in this case would be a worse indicator because it underrepresented the total number of people who were earning a paycheck and contributing to the economy.

B. When people give up on looking for work in a poor economy because jobs are scarce, the unemployment rate is a worse indicator of the true economic picture. Those people who cannot find work and stop looking for work are not counted as unemployed even though they are adversely affected by the tough economic times.

C. When people must find multiple jobs to make ends meet, the economy is worse than the unemployment rate (worse indicator) suggests, because the part-time people are paid less and working more than if the economy was better and they could find a full time job.