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rate of unemployment

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In August 2002, preliminary data showed that payroll employment rose 39,000, household employment rose 429,000, and the unemployment rate fell from 5.9% to 5.7%.
A. Based on these data, what conclusion would you reach about the current employment situation?

B. How would your answer change if you also noted that (a) the unemployment rate for men 20 years and over was unchanged, and (b) the number of initial unemployment claims rose from 386,000 to 398,000.

C. How would your answer change if you also noted that the biggest declines in the unemployment rate occurred in (a) teenagers, and (b) experienced wage and salary workers?

D. Based on this welter of confusing information - which is not unusual - what conclusions can be drawn about basing business plans on the latest monthly employment and unemployment data?

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Solution Preview

The issue discussed here is unemployment. Let us first know the basics.
NARU refers to the rate of unemployment, which occurs when all markets are in an equilibrium position. Thus the natural rate of unemployment is the equilibrium rate of unemployment.

Frictional unemployment: This is simply the time it takes a company to match a qualified job applicant with the right position. It also includes people who are between jobs. It is simply the time it takes for a worker, having lost his job, to register at the job agencies, read the adverts in the papers or on the internet, write or update their CV, choose and apply for new positions, go to interviews, and take up a new position
Structural unemployment: This is unemployment that results from fluctuating consumer taste and/or technological innovation. If a worker has the opportunity to learn new skill sets, or move to a new ...

Solution Summary

The natural rate of unemployment is explored.