Question
Asked Mar 21, 2019
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How does the presence of a discouraged worker affect the unemployment rate?

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Expert Answer

Step 1

Let us first explain certain concepts related to unemployment rate.

Labor force: In an economy, labor force refers to the part of the working age population (aged 15-69) that is willing and able to work. It is the sum of employed and unemployed people.

Unemployment: Unemployment refers to the situation where people in the working age population (aged 16-59) are willing and able to work but cannot find work.

Employed: Those people who belong to the labor force and are working belong to the employed category.

Unemployed: This includes the people who are willing and able to work but do not possess job.

Unemployment rate: It is the number of people unemployed as a percentage of labor force. It is calculated using the formula below:

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Step 2

Discouraged workers are those who are unemployed but no longer seek employment because either they are not able to find desirable jobs or do not get desirable wages. When, among the unemployed, discouraged workers are identified, they are not counted as unemployed anymore. Thus, the number of people unemployed (U) falls.

Assuming that the number of people employed (E) remains the same, the unemployment rate falls.

Step 3

Thus, the presence of discouraged workers leads to a lower unemploym...

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