Quiz 14: Unemployment and Inflation


The study of microeconomics involves the decision making behavior of individual household and firms about the scarce resources in the economy. On the other hand, the macroeconomics is the study of the economy as a whole. The macroeconomics deals with the aggregate data and their structure, performance and behavior as a whole. The microeconomics deals with individual units of the economy. The microeconomics studies the behavior of individual household and firm, which are the individual units of an economy. Like how much output to be produced according to the market demand and how much labor to hire according to production function. All these individual decision add up to the aggregate data, like total output of the economy and total employment in the economy. The firm decision to hire labor or to produce output involves the study of microeconomics and the study of aggregate output and employment involves the study of macroeconomics. If each firm and individual can be seen as individual trees in the forest, then the microeconomics is the individual tree and the macroeconomics is the forest. In macroeconomics the quantity of total goods and services in the economy, the average price level and unemployment level are important. In microeconomics the individual firms output, the individual market price, and the number of labor hired by the single firm is important.

The labor force refers to all people aged 16 and older who are working for pay plus all people in this range who are actively seeking employment. The labor force participation rate is the share of population age 16 and older that is in the labor force. It is calculated as the number of people in the labor force divided by the total number of people aged 16 or older. Though the gap between the participation rate for male and female is narrowing, it is still much higher for men than women. The main reason is the women are much likely to be a full time mother and homemaker. These activities as unpaid are remain outside formal employment. But many women chose not to find a job in order to support their family. Most importantly, it is general notion that woman should work out of choice and men should work for necessity. Hence, the participation rate remains low for men than women. The economists suggests various reason for increase in female participation rate, such as • A more neutral tax system as a second earner encourages many to join the labor force. • Availability of more part time jobs for woman boosts the woman participation rate. • A general change in attitude and deciding an appropriate major increase the opportunity of getting a job. • A more comprehensive birth control system also contributes to the increase in participation rate. The reasons for variation in labor force participation rate between countries is that • Many works are done by woman that is not show up in labor force statistic, because they are mostly unpaid. • Many people in developing countries work in informal sectors and that are not always counted in employment statistics. • In many Muslim countries women are discouraged to join the workforce. All these contribute to the international variations in labor force participation rate between countries.

The unemployment rate is the percentage of labor force that is unemployed. The only people who are classified as unemployed are those who are actively looking for job. There are many who give up search for the employment is not considered as unemployed so as those who never looked for job. Many economists believe that the unemployment rate understates the true extent of economic hardship from unemployment, one reason being the discouraged workers. According to the definition of the unemployed, those who does not look for a job or perhaps given up looking for a job is not considered as a part of the labor force. During recession, when jobs are very hard to get and many people get laid off, people usually stop looking for a job. As the recession hit the economy the women first drop themselves from the labor force and stop looking for a job. Hence, just after recession the unemployment rate of the woman are often lower than that of the men.