Answer to Question #90699 in Microeconomics for Daniel

Question

3. In the January 17, 2004 issue of The Economist, the following statement was made:

“Nor is a fall in the unemployment rate, from 5.9% in November to a 14 month low of 5.7%, much consolation. Most of the fall was accounted for by people leaving the labour force altogether.”

Explain how this decline in the measured unemployment occurred. Why was the decrease in unemployment not much consolation?

Answer 1

This decline in the measured unemployment occurred, because the part of unemployed people became discouraged workers, who don't want to search for a job, so they are out of the labor force. The decrease in unemployment is not much consolation, because there is a decrease in labor force, so the number of potential workers decreases.