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Question

The separation rate in an economy is 2 percent and the rate of job finding is 10 percent.

a. If this economy has 100 million workers in the labor force, calculate i) the steady state unemployment rate and ii) the number of unemployment.

b. If the separation rate falls to 1 percent, what happens to i) the steady state unemployment rate and ii) the number of unemployment?

Answer 1

A:

Steady state unemployment rate = (10-2) % = 8%

Steady state unemployment = 8 millions

B:

Steady state unemployment rate = (10-1)= 9 % %

Steady state unemployment = 9 millions

Separation rate gives you the rate of new openings while job findings rate is the rate of fresh job seeking.

Answer 2

A:

Steady state unemployment rate = 16.(6) %

Steady state unemployment = 16.(6) millions

B:

Steady state unemployment rate = 9.(09) %

Steady state unemployment = 9.(09) millions