Unemployment and discouraged workers: Context Rich Problem

Author: Amy McCormick Diduch, Mary Baldwin College
Author Profile
This material is replicated on a number of sites as part of the SERC Pedagogic Service Project

Summary

Students use data from the Current Population Survey to understand how the definition of who is unemployed affects perceptions of labor market outcomes. Students calculate and compare the official unemployment rate, the unemployment rate including all discouraged workers, and the unemployment rate when some discouraged workers begin searching for work.

Learning Goals

On completing the exercise, students can correctly apply labor force definitions to real data and make meaningful comparisons between unemployment measurement options.

Context for Use

This exercise is appropriate for students in a Principles of Macroeconomics course. The calculations and comparisons can be completed in class (approximately 5-10 minutes) or as homework. This exercise could also be used at the start of a section on unemployment in a Labor Economics course to determine what students remember from past coursework.

Description and Teaching Materials

You are looking over the table of data (below) on the U.S. labor force, employment, unemployment, persons not in the labor force, and discouraged workers from the January 2012 Current Population Survey. You are particularly interested in the problem of discouraged workers. You make several quick calculations. First, you determine the official unemployment rate. Second, you determine the unemployment rate if all discouraged workers are considered to be part of the labor force (and thus, unemployed). Finally, you calculate what would happen to the official unemployment rate if 500 of the discouraged workers begin actively searching for work. When you write a report on labor market dynamics, which of the unemployment rate measures will you choose as a gauge of the state of the labor market in January 2012?...
The problem is fully described in the attached file.
Unemployment and discouraged workers (Microsoft Word 2007 (.docx) 14kB Mar8 12)

Teaching Notes and Tips

Students will need calculators to complete this problem. Students may need to be reminded that the discouraged workers need to be added both to the labor force and to the number of unemployed. Student answers should reflect understanding of the purposes of different unemployment measures. Instructors can easily update the data with current statistics from the latest Employment Situation release from the Bureau of Labor Statistics at https://www.bls.gov/news.release/empsit.nr0.htm.

Assessment

Instructors can use class discussion of the results to observe whether students are able to explain how a change in the number of discouraged workers affects official unemployment statistics. The purpose of the assessment will determine whether or not you need a grading rubric.