2.3 Economic Performance and its Indicators - Measuring Unemployment

Question 1

Define full employment.

Answer 1

Full employment indicates a non-zero low rate of unemployment that is compatible with price stability, when all those who are able and willing to work at the current market wage rate have gained employment.

Question 2

What is the formula for unemployment rate?

Answer 2

Unemployment rate = No. of unemployment persons / Labour force * 100%

Question 3

When is the non-accelerating inflation rate of unemployment (NAIRU) achieved?

Answer 3

NAIRU is achieved when cyclical unemployment (temporary unemployment caused by cycles of demand/temporary lack in demand) is zero and only structural (unemployment due to a mismatch of skills) and frictional (unemployment due to job transitions) unemployment exists.

Question 4

What are the limitations of using unemployment rate as an indicator?

Answer 4

Unemployment rates may not measure the utilisation of our labour resources well because changes in this rate could result from changing size of the labour force.