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s3a
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Homework Statement
If increasing retirements by 'baby-boomers' reduce the annual growth rate of the labour force from 3 percent to 2 percent while employment continues to grow by 2.5 percent, then:
A) The unemployment rate will remain unchanged.
B) The unemployment rate will decrease by about 0.5%. [CORRECT ANSWER]
C) The unemployment rate will decrease by about 4.5%.
D) The unemployment rate will increase by about 0.5%.
E) The unemployment rate will increase by about 4.5%.
Homework Equations
i. Employment Rate = (Number of Employed / Total population that's the minimum age for holding a job)
ii. Unemployment Rate = (Number of Unemployed / Labour Force) * 100
iii. Labor Force = Number of Employed + Number of Unemployed
The Attempt at a Solution
I've been trying, for several days, to understand why what I am doing works.
Basically, mechanically, I get that one can do as follows.:
Labor Force = Number of Employed + Number of Unemployed
+2% = +2.5% + Number of Unemployed
2% = 2.5% + Number of Unemployed
2% - 2.5% = Number of Unemployed
Number of Unemployed = 2% - 2.5%
Number of Unemployed = -0.5% (which gives B as the correct answer)
What confuses me is that the employment rate and unemployment rate have different denominators, where the employment rate and unemployment rate can change for reasons other than the number of people employed or number of people unemployed changing.
For example, what if something changes with the total population that's the minimum age for holding a job or with the labour force (in other words, the denominators of the employment and unemployment rates)? Then, the rates would change, but the number of people employment or unemployed wouldn't, so why does the Labor Force = Number of Employed + Number of Unemployed work?
How can I justify that the Labor Force = Number of Employed + Number of Unemployed works with rates of change rather than the raw numbers for people in the labour force, people employed and people unemployed? Put differently, why does it work in solving the problem I posted on this thread?
If something is unclear, tell me, and I will attempt to clarify it.