U.S had released it's latest unemployment rate at 7.8%.For the past 44 months,this is the first time the figure had reached below 8%.
Though the numbers look nice ,there is a flaw in the caculation.There are 2 main areas to take note when interpretating the unemployment rate.
First,we look at how U.S unemployment rate is calculated.
Number of unemployed & had been actively looking for jobs for 4 weeks
-----------------------------------------------------------------------------------------------------------x 100
Total Labour force(employed & unemployed who had been actively looking for jobs)
1)The figure does not include the number of unemployed people who give up finding jobs after 4 weeks,resulted them to left the labour force thus it will show a lower % in unemployment rate.
2)The figure does not include the number of ppl who are unemployed and are not actively looking for jobs for the past 4 weeks who enter into the labour force.
For point 1 ,we use an example to illustrate:
Total labour force(employed & unemployed who had been actively looking for jobs) = 100million
Number of unemployed & had been actively looking for jobs = 10 million
Unemployment rate = 10 / 100 x 100 = 10%
If the economy is deteriorating ,the number of unemployed who had been actively looking for jobs for the past 4 weeks will give up hope and stop searching for jobs.And assuming the number is 1 million people left the labour forces.
Total labour force(employed & unemployed who had been actively looking for jobs) = 99million
Number of unemployed & had been actively looking for jobs = 9 million
Unemployment rate = 9m / 99m x 100 = 9.09%
So we will get a lower % in unemployment rate even when the economy is worsening.
For point 2,
If the economy is expanding,the number of unemployed who had not been actively looking for jobs for the past 4 weeks enter into the labour forces to search for jobs is 1 million people.
New Total labour force(employed & unemployed who had been actively looking for jobs) = 101million
Number of unemployed & had been actively looking for jobs = 11 million
Unemployment rate = 11m / 101m x 100 = 10.89%
An increase in unemployment rate even though the economy is growing!
We can conculde that the caculation of the data did not consider the number of unemployed who have been actively looking for the jobs for the past 4 weeks who left the labour force and who have enter into the labour force thus it will show a conflicting result.
Though the numbers look nice ,there is a flaw in the caculation.There are 2 main areas to take note when interpretating the unemployment rate.
First,we look at how U.S unemployment rate is calculated.
Number of unemployed & had been actively looking for jobs for 4 weeks
-----------------------------------------------------------------------------------------------------------x 100
Total Labour force(employed & unemployed who had been actively looking for jobs)
1)The figure does not include the number of unemployed people who give up finding jobs after 4 weeks,resulted them to left the labour force thus it will show a lower % in unemployment rate.
2)The figure does not include the number of ppl who are unemployed and are not actively looking for jobs for the past 4 weeks who enter into the labour force.
For point 1 ,we use an example to illustrate:
Total labour force(employed & unemployed who had been actively looking for jobs) = 100million
Number of unemployed & had been actively looking for jobs = 10 million
Unemployment rate = 10 / 100 x 100 = 10%
If the economy is deteriorating ,the number of unemployed who had been actively looking for jobs for the past 4 weeks will give up hope and stop searching for jobs.And assuming the number is 1 million people left the labour forces.
Total labour force(employed & unemployed who had been actively looking for jobs) = 99million
Number of unemployed & had been actively looking for jobs = 9 million
Unemployment rate = 9m / 99m x 100 = 9.09%
So we will get a lower % in unemployment rate even when the economy is worsening.
For point 2,
If the economy is expanding,the number of unemployed who had not been actively looking for jobs for the past 4 weeks enter into the labour forces to search for jobs is 1 million people.
New Total labour force(employed & unemployed who had been actively looking for jobs) = 101million
Number of unemployed & had been actively looking for jobs = 11 million
Unemployment rate = 11m / 101m x 100 = 10.89%
An increase in unemployment rate even though the economy is growing!
We can conculde that the caculation of the data did not consider the number of unemployed who have been actively looking for the jobs for the past 4 weeks who left the labour force and who have enter into the labour force thus it will show a conflicting result.
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