Suppose the unemployment rate in the United States was 6.0 percent in March 2014. Suppose further that in April 2014, the number of people employed increased by 200,000 and the labor force increased by 250,000. From this information, you can conclude with certainty that the unemployment rate in the United States in April 2014 was __ the unemployment rate was in march.
The correct answer and explanation is:
Correct Answer: Higher than the unemployment rate was in March.
Explanation (300 words):
To determine the change in the unemployment rate from March to April 2014, we need to understand how it’s calculated. The unemployment rate is defined as: Unemployment Rate=Number of Unemployed PeopleLabor Force×100\text{Unemployment Rate} = \frac{\text{Number of Unemployed People}}{\text{Labor Force}} \times 100
We are told:
- In March 2014, the unemployment rate was 6.0%.
- From March to April 2014:
- Employment increased by 200,000 people.
- Labor force increased by 250,000 people.
Now, consider this: If the labor force increased by 250,000, and 200,000 of those new people became employed, then: Increase in unemployed people=250,000−200,000=50,000\text{Increase in unemployed people} = 250,000 – 200,000 = 50,000
This means that while more people got jobs, a number of people entered the labor force and did not find jobs — thus increasing the number of unemployed.
So although employment rose, unemployment rose as well, because the number of unemployed people increased due to the labor force growing faster than employment.
Let’s understand this with a simplified version of the math (not using actual population data, but proportions):
- If the labor force grows more than employment, then unemployed = labor force – employed increases.
- An increase in the number of unemployed, with a labor force that also increased, can lead to an increase in the unemployment rate, depending on the proportion.
In this case, since unemployed persons increased by 50,000, the numerator of the unemployment rate formula increased. Even though the denominator (labor force) also grew, the net effect was an increase in the unemployment rate.
Thus, with certainty, we can say the unemployment rate in April 2014 was higher than it was in March 2014.