# Case 1: The Incredible Shrinking Labor Force

```Calculating the unemployment rate
# of people unemployed divided by
# of people in the civilian labor force
x100
7,000,000/151,400,000 =.046
.046 x 100 = 4.6
LF=labor force U=unemployed
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LF=100,000,000, U=5,000,000
LF=275,000,000, U=7,000,000
LF=46,789,000, U=2,563,000
LF=18,739,000, U=1,045,996
LF=1,198,000,000, U=211,000,000
• Figure out the Unemployment rate for each
example
Case 1
• Suppose an economy has a labor force of 125 people
and there are currently 100 jobs filled. Determine the
number of employed, unemployed, and the
unemployment rate. Now suppose that 5 people who
had jobs share a big lottery prize and decide to retire
for the rest of their lives. Assuming the same number
of jobs are filled after these people retire, compute the
number of employed, unemployed, and
unemployment rate.
• What conclusions can you draw from this example?
Unemployed /
Employed + Unemployed
• Initially - employed = 100, unemployed = 25,
unemployment rate = 25/125 =1/5 or 20%
• After the lottery - employed = 100, unemployed
= 20, unemployment rate = 20/120 = 1/6 or 17%
• Even when the number of jobs remains the
same, the unemployment rate will change if the
size of the labor force changes. The same
number of people (5) was subtracted from both
the numerator and denominator, resulting in a
smaller fraction or ratio.)
Case 2
• Suppose an economy has a labor force of 100
people and 70 jobs, with 30 of those jobs in the
public/government sector. Determine the number
of employed, unemployed, and the unemployment
rate. Suppose the government decides it is
unacceptable to have an unemployment rate this
high. Officials declare that two workers instead of
one will now be hired to fill each of the current 30
government jobs. The amount of production done
will not change, but two workers will do what was
previously done by one worker. Given these
changes, recompute the number employed,
unemployed, and the unemployment rate.
• What conclusions can you draw from this example?
Unemployment 0
• Initially - employed = 70, unemployed = 30,
unemployment rate = 30/100 or 30%
• After the new government policy is adopted employed = 100, unemployed = 0,
unemployment rate = 0 percent
• Unemployment rates do not measure how
productive workers are. If production levels
remain the same but more people are
employed, employment rises and unemployment
falls. But productivity or output per worker is
also lower