What are two issues with the unemployment rate in any given area?
Definition Definition State in which an individual is without work, despite actively seeking employment opportunities. The unemployment rate refers to the percentage of the workforce that is currently unemployed. Unemployment is one of the key indicators of the conditions prevailing in an economy. It is therefore considered a barometer that points out the condition of an economy.
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Step 1
Let us discuss certain concepts related to unemployment rate:
Employed: Those people who belong to the labor force and are working belong to the employed category.
Unemployed: This includes the people who are willing and able to work but do not possess job.
Labor force: In an economy, labor force refers to the part of the working age population (aged 15-69) that is willing and able to work. It is the sum of employed and unemployed people.
Unemployment: Unemployment refers to the situation where people in the working age population (aged 16-59) are willing and able to work but cannot find work.
Unemployment rate: It is the number of people unemployed as a percentage of labor force. It is calculated using the formula below:
Step 2
The two issues with unemployment rate in any given area are:
1.Unemployment rate does not include discouraged workers: Discouraged workers are those who are unemployed but no longer seek employment because they are not able to find desirable jobs or wages. Though these people still do not have jobs, they are not anymore counted as unemployed. Thus, unemployment rate as a measure of joblessness understates the situation of joblessness due to disregard for discouraged workers.
2.Unemployment rate does not distinguish between full-time and part-time jobs: Consider a situation where someone takes a part-time job because he couldn’t find a full-time job. Such a person is not considered as unemployed even if the job is part-time and not full-time. Thus, unemployment rate does not focus on the quality and desirability of jobs and considers full-time jobs at par with part-time jobs even if a part-time job is low paying.
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