3. Understanding unemployment rates Phelps was suspicious of the tradeoff sugpested by the Philips curve. He thought that sensible, forward-looking people shauld not ehange their behaviot just because the prices on all the price tags in the economy increased at 4% per year instead of at 2% per year. Pheips started his analysis by asking what determines the unemployment rate. One of the key points he recognised was that unempleyment is the hevitable consequence of an econeny in which some firms go out of business wach month and some workers quit their jobs each month. Oence a werker is out of a job, the indididal will take some time searching for the next one. Cansider the following scenavio. Picture an economy with 100,000 workers in its labor force. The unemployment rate is simply the number of unemployed workers divided by the number of workers in the tabor force. At the beginning of January, the unemployment rate is 4.7625, so 4,760 people in the laber force are unemployed. Suppose that in Jenuary, 20% of the workers who were unemployed at the beginning of the month start new jobs. This means that people leave the unemployment category in January. 5uppose that in January the job separatien rate equels 3 se. That is, 3w, of the pecpie aho were employed at the beginning of the month are laid of er qu-. TNis miesns Beople are edded to the unemployment category that monsh. (kint: found your answer to the nearest whole number) ef unempored warkers fins new yobs, the unempioyment rate at the beginning of february hill be approkinatey. Ltint gound your answer to the nearest Fundrect.) Assume the size of the labor force does not change from January to February. Considering that the job separation rate is 3% duning January, and 20%. of unemployed workers find new jobs, the unemployment rate at the beginning of February will be approvimately (Hint: Round your answer to the nearest hundredth.? Generalizing from your calculations for lanuary, if in february, the job separation rate is 3%, and 20 of of unemployed workers get jobs, the unemployment rate at the end of February will Suppose thst at the beginning of August, the unemployment rate is 4.76%, however, this month just 0.3% of the employed workers beceme unemployed. Suppose that in August, 20% of the workers who were unemployed at the beginaing of the month find new jobs. The unemployenent rate be at the beginning of September will be (Mint: Round your answer to two becimal plsces.) Now suppose that in September, the job separation rate returns to normali 3 W of the workers who were enployed at the beginning of the month becoene unemployed. As always, 20% of the workers who are unemployed find jobs doring the month. In the last awestian, you calculated a fower unemployment rafe for the beginning of September. Use the numbers of emaloyed werkers and unemployed workers implied by this unempiloyment rate to calculate how many employed workers become unemployed during sentember and how. many unemployed workers find jobs during september. The unemploymers rate at the end of September is