Question

Suppose that 20,000 of the employed switches to jobs in the underground

economy. When interviewed by STATIN, 50% of these switchers report that they

are not working and not seeking work, while the other 50% report that they are

not working but seeking work. Explain what happens to the official

unemployment rate and the “true” unemployment rate. (2 marks)

Answer 1

The official unemployment rate decreases and the 'true' unemployment rate also decreases.

This is due to the fact that some of the switchers that reported they are not working and not seeking work are working.