Which of the following causes the unemployment rate to under

Which of the following causes the unemployment rate to understate the true extent of joblessness?

A) many full time workers really want to be part time workers.

B) persons who collect unemployment benefits report themselves to be searching for a job.

C) discouraged workers are not counted as unemployed.

D) a drug dealer reports herself as unemployed.

E) discouraged workers are counted as unemployed.

Solution

Options (c) cause the unemployment rate to understate the true extent of joblessness.

(A) It is a very common practice in most underdeveloped countries where a major part of the population is engaged in agricultural labour force, many full time workers want to work only during the harvest period as part time workers and remain unemployed the rest part of the year. For all these full time workers who really want to be part time workers in spite of having a job they do choose to remain unemployed wilfully. Hence, in this case the unemployment rate overstates the true extent of joblessness.

(B) There are many persons who receive unemployment dole from government sufficient enough for their living. These people really do not look for a job as they are getting paid for doing nothing. Hence, even in this case the unemployment rate overstates the true extent of joblessness.

(C) Since Discouraged workers have given up looking for job, they are not counted as active in the labour force whereas they are actually unemployed. Hence, in this case the unemployment rate understates the extent of joblessness.

(D) When a drug dealer reports himself/herself as unemployed then he/she is not revealing the truth of his earning and rendering himself/herself as unemployed which is not the reality. Hence there is an overestimation of unemployment rate here.

(E) In general practice discouraged workers are not counted as a part of active labour force. However. even if it is the case then it gives the correct estimation of unemployment neither understating nor overstating the measure.