Short Answer Questions:

1. In the Labour Force Survey (LFS), someone who only works as little as one hour per week is defined as employed. What implication does this have for the accuracy of the unemployment rate statistic as a measure of true unemployment? Explain your answer.

The ABS counts everyone who works for at least one hour in the reference week as employed. While a one hour cut-off point could be argued to be insufficient to sustain a family or person financially, there are several reasons for including everyone who works at least one hour a week as employed.

From an economic perspective, any time in paid work, no matter how small, contributes to economic production and is therefore included in the national accounts. Fundamentally, labour force statistics are economic indicators and need to be coherent with other economic measures.

Socially, it is recognised that employment is associated with improved psychological and social well-being. It is therefore important to distinguish between those who have any work (even if a small number of hours) and those who do not.

By applying the one hour criterion, the ABS is measuring unemployment in an internationally consistent manner, which enables governments and policy makers to draw on international comparisons.

If the one hour criterion was not used it is not clear what cut-off should apply. Some people who work for relatively few hours each week do not necessarily want to work more hours.

2. What may be the reasons for paying 'efficiency wages' and what effects should it have on firms and workers?

Firm prefer to pay higher than equilibrium wages because of the following reasons:

- Worker health: Better paid workers eat a better diet and become more productive.

- Work turnover: A high paid worker is less likely to look for another job

- Worker effort: Higher wages motivates employees to put their best effort in doing their task.

- Worker quality: Higher wages attract a better pool of workers to apply for jobs.

The consequence of the efficiency wage theory is that the market for labour does may not clear and unemployment may be persistently higher than its natural rate. Instead of market forces causing the wage rate to adjust to the point at which supply equals demand, the wage rate will be higher and supply will exceed demand. This produces higher wages for those who are employed but higher levels of unemployment.

3. Consider the following labour market data and compute the followings (where relevant, show it to two decimal points).

i) Calculate the labour force

ii) Calculate the percentage of people not in the labour force.

iii) Calculate the rate of unemployment.

iv) Calculate the labour force participation rate. 

4. Do you agree with the following statement? Explain your answer:

'The participation rate usually increases during recessions such as the global financial crisis in 2008. This is because the probability of finding a (better paid) job decreases'.

5. Go to www.gapminder.org/world. In the graph shown for Y (vertical) axis select: "Child mortality (0-5 years dying per 1,000 born)" and for X (horizontal) axis select "time". From a list of the countries on the right-hand side bar, select Singapore, Sweden, and Venezuela. Then, Adjust time slideron the bottom to year 1880, and then press play (no need to copy the graph here, but if you can past it here, that's great!):

a. Describe the data you observe, contrasting the outcomes in the three countries.

b. Try to provide brief explanations for these outcomes.

c. What is your prediction about how future outcomes will evolve in these countries?

6. Go to: http://en.wikipedia.org/wiki/List_of_countries_by_public_debt.

Look at the table of countries and report any interesting or surprising observations you have made. Your discussion should be more than half a page in length.