Dr. Smith on the Channel 6 news says, "The recent figures showing that the unemployment rate is lower this quarter than last quarter are a definite sign that our economy is coming out of the recession." Dr. Jones on the Channel 8 news says, "Recent figures showing that employment is lower this quarter than it was last quarter are a definite sign that our economy is still plunging deeper into the
recession."
a. Is it possible for both unemployment and employment to fall at the same time? What factor could account for the observed phenomenon?
b. In light of your answer, what do you think about the health of the economy relative to last quarter?
a. Yes, if some of last period's unemployed workers became discouraged and quit actively seeking work and, thus, dropped out of the labor force, this would lower the unemployment rate without raising employment. The fact that employment fell means more people dropped out of the labor force than lost their jobs during the last quarter.
b. It appears there was a net loss of jobs and that the economy is worse off than it was last quarter.
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