Econia has a population of 1 million. In 2017, the population and employment data include 350,000 persons under age 16, 400,000 employed persons, 30,000 unemployed persons, 60,000 retired persons, and 30,000 full-time homemakers. In 2018, the numbers remained the same EXCEPT that there was a 2,000 person increase in the number of discouraged workers that affected some of the counts. How would the 2018 unemployment rate (U3) compare to the 2017 unemployment rate?

Question

Quizplus · Accepted Answer

The unemployment rate (U3) is calculated as the number of unemployed persons divided by the labor force (employed plus unemployed). The increase in discouraged workers in 2018 would decrease the number of people counted as unemployed (since discouraged workers are not actively seeking employment and thus not counted in the labor force), while the number of employed remains the same. This results in a lower unemployment rate because the numerator (unemployed) decreases while the denominator (labor force) also decreases, but the proportion of unemployed to the labor force becomes smaller.

Econia Has a Population of 1 Million