Suppose an economy has 10,000 people who are not working but looking and available for work and 90,000 people who are working. What is its unemployment rate? Now suppose 4,000 of the people looking for work get discouraged and give up their searches. What happens to the unemployment rate? Would you interpret this as good news for the economy or bad news? Explain.

In the American context, the unemployment rate goes down if people drop out of job seeking because the US government bases unemployment only on active job hunters. This is bad news for the economy as it means unemployment figures do not reflect reality. It also means a number of "invisible" people exist who need resources but are not contributing to the economy or the tax base.

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If we are discussing the US economy, the 4,00o people who have given up looking for a job would make the unemployment figures look significantly better. This is because the US Department of Labor considers only people actively seeking work to be unemployed. Those who are no longer searching for a job become invisible.

This is not necessarily a problem in a thriving economy where people perhaps drop out of the work world because their family can live on one income, investments have allowed for early retirement, or a person has saved enough money to take an extended sabbatical from work to pursue another project. However, it is a big problem in economies that are struggling or shedding jobs.

First, this methodology leads to misleadingly optimistic employment figures. This can cause not dealing with what might be a bigger political or economic problem that the people in power think to be the case. Having a large group of people who feel they cannot find work has the potential to be politically explosive. Further, people who are not working still need food, clothing, housing, and medical care, yet they are not contributing cash to the economy. It would be best if they could be located, the structural weaknesses that keep them from employment were analyzed, and attempts were made to integrate them into the paid work economy.

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