IAI Actuarial Core Principles · Business Economics · Business activity, unemployment and inflation
Which of the following would most likely cause the official measured unemployment rate to fall even though no additional jobs have been created?
Discouraged workers giving up their search lowers the measured rate. They drop out of the labour force and are no longer counted as unemployed, so the rate falls although no new jobs have been created, which hides real labour market weakness.
- ADiscouraged workers stop searching and leave the labour forceCorrect
- BFirms increase hiring in the manufacturing sector
- CMany school leavers enter the labour force and start looking for jobs
- DThe government introduces more generous unemployment benefits
- Employed part-time workers lose their jobs
Explanation
The rate is unemployed divided by labour force. If discouraged workers stop searching they are no longer counted as unemployed, so the numerator falls without any new jobs. New hiring would create jobs, and new entrants or job losses would raise the rate.
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