Solution Manual for Labor Economics, 8th Edition

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1CHAPTER 22-1.The table below reports the unemployment rate, labor force participation rate, and(working-age) population for the United States in January 2008, 2011, and 2016. Using thedata, answer the following questions.a.What was the size of the labor force at the start of each year?b.How many people were officially unemployed at the start of each year?c.What about these numbers may cause some concern even though the unemploymentrate to start 2016 was a notch below the unemployment rate in 2008 as the economywas entering the Great Recession?200820112016Unemployment Rate5.0%9.1%4.9%Labor Force Participation Rate66.2%64.2%62.7%Working-age Population234m238m251mParts (a) and (b) require some mathematical manipulations. As the labor force participation rateequals theLF/P, the size of the labor force (LF) each year is simply the working age population(P) times the labor force participation rate. Once the size of the labor force (LF) is know, thenumber of unemployed individuals is calculated by multiplying the labor force by theunemployment rate. For 2008, for example,LF= 234m × 0.662 = 154.9 million, and thereforeU= 154.9m × 0.05 = 7.745 million. The numbers for the other years are found similarly. Theanswers are contained in the following table:200820112016Labor Force (LF)154.9m152.8m157.4mUnemployed Population (U)7.745m13.9m7.713mAs for part (c), these numbers are concerning despite the unemployment rate returning tosomething less than 5%. The concern is that the labor force participation rate has fallendrastically. According to the above numbers, the labor force consisted of 157.4 millionindividuals in 2016. Of these, only 4.9% were unemployed. Put differently, 95.9% × 157.4 =150.9 million individuals were employed. Had the labor force participation rate remained at66.2% in 2016, the labor force would have consisted of 251m × 0.662 = 166.2 millionindividuals. Of these, only 150.9 million were employed. Taking into account these individualswho have left the labor force (i.e., the hidden unemployed), the unemployment rate in 2016 couldhave been as high as (166.2–150.9) / 166.2 = 9.2%.

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