Question
Asked Mar 24, 2019
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What are two issues with the unemployment rate in any given area?

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Expert Answer

Step 1

Let us discuss certain concepts related to unemployment rate:

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.

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.

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

The two issues with unemployment rate in any given area are:

1.Unemployment rate does not include discouraged workers: Discouraged workers are those who are unemployed but no longer seek employment because they are not able to find desirable jobs or wages. Though these people still do not have jobs, they are not anymore counted as unemployed. Thus, unemployment rate as a measure of joblessness understates the situation of joblessness due to disregard for discouraged wor...

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