W4P1 - Labour Market

Question 1

Define the labour force

Answer 1

The labour force consists of those who are employed and those who are unemployed:

Labour Force = Employed + Unemployed

Those people who are not working but who are not actively looking for a job will be classified as non-participants or inactive and are not part of the labour force.

Question 2

Define involuntary unemployment

Answer 2

Involuntary unemployment exists when the wage is set above the market clearing wage. This can happen when a minimum wage is set
above the market clearing wage so that labour supply is larger than
labour demand for that wage.

Question 3

Define the unemployment rate

Answer 3

The unemployment rate is defined as the ratio of unemployed over the
labour force:
unemployment rate = unemployed / labour force

Question 4

Define the participation rate

Answer 4

The participation rate is defined as the ratio of the labour force over the total population aged typically 16-64. It can give an indication of the worker potential in the economy.