Calculating the Labour Force Participation and Unemployment Rate

Questions:

The table below reports some labour market figures for a hypothetical country, Blefuscu in 2005. Assume that there are only two types of employment: full time and part time. Everyone who is not employed is unemployed. Calculate the Labour force participation and ii) unemployment rate. Show all your calculations.  

The government of Blefuscu announces that the unemployment rate fell from 2005 to 2006. The government says this is positive news as it shows more jobs are being created and less people are unemployed. The labour unions, on the other hand, disagreed with this assessment and stated that they could find no evidence that additional jobs have been created between 2005 and 2006. 

Your task is to explain how the unemployment rate can fall even if there are no new jobs being created. First, using the numbers you have been given in 1A as the 2005 figures, fill in the table below by developing a set of numbers that show how the unemployment rate can fall even if there are no new jobs being created.  Assume no change between 2005 and 2006 in the population, percentage of part time workers and working age population. Second, discuss in detail how the numbers show the unemployment rate can fall even if there are no new jobs being created. List two possible reasons why this may occur.           

Economists are deeply puzzled by our desire to have children. First, kids are really expensive – the biggest financial decision most couples will make. Forget the cost of buying the family home; the kids you choose to populate it with will end up costing just as much, or more, over a lifetime. A survey released last week by AMP and the National Centre for Social and Economic Modelling found the typical Australian family spent $812,000 raising two kids. This is an increase of nearly 50 per cent in just six years. …Economists like to assume we are rational individuals who make decisions based on anticipated costs and benefits. 

The Sunday Mail (Qld) May 26 2013 

You are the senior Economic advisor to the Prime Minister who is currently considering how to  reduce the cost of having children and promote more economic growth. Some of her party want to continue John Howard’s “baby bonus” scheme that provides a lump sum of cash to parents upon the birth of a child. Others argue that the government should instead aim to focus on lowering the costs of educating children by making tertiary education free. 

a. Discuss how each of these options will affect wages and labour productivity, potential GDP and real GDP. Will they lead to growth in real GDP and rises in real GDP per capita?  use  the potential GDP and labour market diagrams in your answer. 

b. Imagine that whatever strategy will be chosen, it will be kept for the next three decades. In terms of achieving growth in the long run, discuss which strategy would lead to higher growth rates and explain why.

c. How would each strategy affect the standard of living?  

Explaining How the Unemployment Rate Can Fall Without New Jobs

The natural unemployment rate is defined as the rate of unemployment when there is equilibrium in the labor market. The unemployment rate is the difference between the number of individuals that would like a job and the people who are able to and willing to take a job. The rate of unemployment includes two types of unemployment they are frictional and structural unemployment. The natural rate of unemployment generally occurs due factors in the supply sides and not on the demand side (Argy et al 2016).

So the above table provides information regarding the population, working age population, the number of people not in the labor force, the percentage of part-time employment, the number of full-time employees and rate of underemployment.

The labor force participated can be calculated using the formula:

Labor force participated rate= labor force (employed + unemployed)/working age population * 100

=(4,953,000+100,000+232200) 12900000 * 100

= 41%

Here, 230400 is the total number of persons in the in the part-time employment.

Unemployment percentage= total number of unemployed person/ unemployed+ employed

= 100,000/ 100,000 + 4,953,000 + 232200

= 2%

So, from the above data, the labor force participated and the unemployment rate was 2%.

The report of the payroll jobs and reports of unemployment rate are circulated together, and it is also covered under the report of same press, so it is genuine to assume that both the report is circulated from the same source of data. And we calculate the unemployment with the help of household survey, not from the payroll jobs, so there is no particular relationship between change in the rate of unemployment and number of new payroll job generated(“More Misleading Official Employment Statistics | The Daily Bell”, 2016).

The survey of the new payroll jobs counts an individual having two jobs as it were two individual employed, whereas the survey of households counts the individual holding two jobs as one. It should always be kept in mind that the number of payroll job may increase because of the use of birth-death model, which is used to calculate the number of unreported shutdowns of business and startups(“More Misleading Official Employment Statistics | The Daily Bell”, 2016).

So the rate of unemployment can be dropped easily because of the definition of the workforce, which excludes discouraged workers. So it is evident that an increase in the population of discouraged workers can lower the unemployment rate(“More Misleading Official Employment Statistics | The Daily Bell”, 2016).  

In the recent years, the government is facing a huge concern in reducing the cost of the cost of having children and promotes more economic growth. Many were of the view that the government should go for the John Howard’s “baby bonus” scheme that provides a lump sum of cash to parents upon the birth of a child, whereas many were against this scheme and advocated that the government should spend the money in reducing the cost of education of children by making tertiary education free.

The federal government of Australia introduces the Baby Bonus scheme on 2002 with the aim to reduce the cost of bringing up a child. The primary aim of the scheme was to increase the fertility rate of Australia. The government raised the bonus from 3000 dollars to 4000 dollars in the year 2004. Under this scheme the women can claim up to 25000 dollars of the paid tax during the period of her pregnancy, making sure that the tax-free amount is not being wasted. The government implemented this scheme to reduce the cost of bringing up a child because the family expenses of bringing up children are increasing day by day.

The Effects of Different Strategies to Reduce the Cost of Having Children on Wages, Labor Productivity, Real GDP, and Potential GDP

But many people advocate the idea of lowering the cost of the education by making tertiary education free.

The implementation of the baby bonus by the government does not have much impact on the wages and the labor productivity and does not help in the growth of the GDP and the real GDP. Many of the scholars highlighted that if the government focus on lowering the cost of education by making tertiary education free will positively affects the economy of a country. The Baby bonus scheme does not have any benefit for the future education of the child. And it is evident that higher education rate helps in the economic growth of the country. By investing this money in the future education of the child the government can improve the economic condition of the country, help them to increase the GDP and will increase the real GDP per capita(“Baby Bonus Scheme” 2016).

Instead of implementing the baby bonus scheme the government should concentrate on reducing the cost of the education by making the tertiary education free because if the government does so it will increase the literacy rate of the country. With the increasing inflation it has become tough for many students to complete their education, so making the tertiary education free will help the government in the long-run, because with the free tertiary education now more children will be educated and which will improve their productivity, and increase literacy rate will also help in narrowing the wage gap between the workers. Free tertiary education will increase the productivity of the labor in the industry, which will further help the company to grow and increase the real GDP and potential GDP, strengthening the economy of the country(“Baby Bonus Scheme” 2016).

So from the above discussion, it is clear that the government should spend more money on educating children because this will benefit the country in the long –run.

The baby bonus plan is not properly directed so its result in unequal distribution of wages and adversely affect the standard of living. Whereas if the government spend more on educating children than this will help in reducing the wage difference between the workers and will improve the living standards of the population. 

References 

Aaronson, S., Cajner, T., Fallick, B., Galbis-Reig, F., Smith, C., &Wascher, W. (2014). Labor force participation: recent developments and future prospects. Brookings Papers on Economic Activity, 2014(2), 197-275.

Argy, V. E., &Nevile, J. (Eds.). (2016). Inflation and Unemployment: Theory, Experience and Policy Making. Routledge.

Baby Bonus Scheme. (2016). MSF Corp Web. Retrieved 22 May 2016, 

Blustein, D. L., Kozan, S., & Connors-Kellgren, A. (2013). Unemployment and underemployment: A narrative analysis about loss. Journal of Vocational Behavior, 82(3), 256-265.

Bowen, W. G., &Finegan, T. A. (2015). The economics of labor force participation. Princeton University Press.

Gaddis, I., &Klasen, S. (2014). Economic development, structural change, and women’s labor force participation. Journal of Population Economics, 27(3), 639-681.

Hoshi, T., & Yasuda, A. (2016). Capital Market Regulation in Japan after the Global Financial Crisis. In The New International Financial System: Analyzing the Cumulative Impact of Regulatory Reform (pp. 165-195).