Changes in the volume of unemployment are governed by three fundamental forces: the growth of the labor force, the increase in output per man-hour, and the growth of total demand for goods and services. Changes in the average hours of work enter in exactly parallel fashion but have been quantitatively less significant. As productivity rises, less labor is required per dollar of national product, or more goods and services can be produced with the same number of man-hours. If output does not grow, employment will certainly fall; if production increases more rapidly than productivity (less any decline in average hours worked), employment must rise. But the labor force grows, too. Unless gross national product (total final expenditure for goods and services corrected for price changes) rises more rapidly than the sum of productivity increase and labor force growth (again modified for any change in hours of work), the increase in employment will be inadequate to absorb the growth in the labor force. Inevitably the unemployment rate will increase. Only when total production expands faster than the rate of labor force growth plus the rate of productivity increase and minus the rate at which average annual hours fall does the unemployment rate fall. Increases in productivity were more important than growth of the labor force as sources of the wide gains in output experienced in the period from the end of World War II to the mid-sixties. These increases in potential production simply were not matched by increases in demand adequate to maintain steady full employment.
Except for the recession years of 1949, 1954, and 1958, the rate of economic growth exceeded the rate of productivity increase. However, in the late 1950s productivity and the labor force were increasing more rapidly than usual, while the growth of output was slower than usual. This accounted for the change in employment rates.
But if part of the national purpose is to reduce and contain unemployment, arithmetic is not enough. We must know which of the basic factors we can control and which we wish to control. Unemployment would have risen more slowly or fallen more rapidly if productivity had increased more slowly, or the labor force had increased more slowly, or the hours of work had fallen more steeply, or total output had grown more rapidly. These are not independent factors, however, and a change in any of them might have caused changes in the others.
A society can choose to reduce the growth of productivity, and it can probably find ways to frustrate its own creativity. However, while a reduction in the growth of productivity at the expense of potential output might result in higher employment in the short run, the long-run effect on the national interest would be disastrous.
We must also give consideration to the fact that hidden beneath national averages is continuous movement into, out of, between, and within labor markets. For example, 15 years ago, the average number of persons in the labor force was 73.4 million, with about 66.7 million employed and 3.9 million unemployed. Yet 14 million experienced some term of unemployment in that year. Some were new entrants to the labor force; others were laid off temporarily. The remainder were those who were permanently or indefinitely severed from their jobs. Thus, the average number unemployed during a year understates the actual volume of involuntary displacement that occurs.
High unemployment is not an inevitable result of the pace of technological change but the consequence of passive public policy. We can anticipate a moderate increase in the labor force accompanied by a slow and irregular decline in hours of work. It follows that the output of the economy—and the aggregate demand to buy it—must grow by more than 4 percent a year just to prevent the unemployment rate from rising, and by even more if the unemployment rate is to fall further. Yet our economy has seldom, if ever, grown at a rate greater than 3.5 percent for any extended length of time. We have no cause of complacency. Positive fiscal, monetary, and manpower policies will be needed in the future.
1. The primary purpose of the passage is to
(A) define the economic terms used in the discussion of employment
(B) criticize the decisions of past administrations during recession years
(C) call for the application of positive economic control policies in the years that lie ahead
(D) allay current fears about increasing unemployment
(E) document the rise of American productivity since World War II
2. According to the passage, if the labor force does not grow and there is no decline in the average number of hours worked, under which of the following conditions will the employment rate inevitably rise?
(A) Total production expands faster than the total demand for goods and services.
(B) The total demand for goods and services and productivity both rise.
(C) Output per man-hour and gross national product both rise.
(D) Productivity increases more rapidly than production.
(E) Production increases more rapidly than output per man-hour.
3. It can be inferred from the passage than in the late 1950s, which of the following occurred?
I. The growth in output was less than 3.5 percent.
II. The average number of hours worked declined.
III. The increase in output per man-hour was greater than usual.
(A) I only
(B) II only
(C) III only
(D) I and III only
(E) I, II, and III
4. It can be inferred from the passage that during the recession years of 1949, 1954, and 1958, which of the following most likely occurred?
(A) The labor force increased more rapidly than it did in any other year between 1945 and 1965.
(B) More labor was required per dollar of national product than in any other year between 1945 and 1965.
(C) The average number of hours worked rose.
(D) Full employment was attained.
(E) The rate of unemployment increased.
5. It can be inferred from the passage that if a policy to increase employment by reducing the growth of productivity at the expense of potential output were adopted, the author most likely would regard it as
(A) sound but inadequate
(B) overly aggressive
6. It can be inferred from the passage that, according to the author, the actual number of people who experience some term of unemployment during any given year
(A) is the difference between the number of persons in the labor force and the number of persons employed that year
(B) does not reflect movement into, out of, between, and within labor markets
(C) exceeds the average number unemployed during that year
(D) overstate the volume of involuntary displacement that occurs during the year
(E) is impossible to calculate
7. The passage contains information that answers all of the following questions EXCEPT:
(A) What is gross national product?
(B) What effect does a change in productivity invariably have on gross national product?
(C) Under what conditions might employment rise in the short run?
(D) What effect does an increase in output and a decrease in number of hours worked have on productivity?
(E) What was the average number of people unemployed in 1962?
8. Which of the following best describes the organization of the fifth paragraph of the passage?
(A) An assertion is made, data are provided to support it, and the assertion is reiterated in different words.
(B) Several figures are given and hypothesis is formulated to explain them.
(C) An example is given to support the conclusion drawn in the preceding paragraph.
(D) A statement is made, data are provided to illustrate and amplify the statement, and a conclusion is drawn.
(E) A generalization is made and an example is given to refute it.
9. Which of the following proposals best responds to the author’s concerns?
(A) The government should manipulate the size of the labor force to prevent future recessions.
(B) The government should maintain some controls over the economy, but it should allow the employment rate to rise and fall with the gross national product, as a check on labor costs.
(C) People should accept that unemployment is undesirable but unavoidable.
(D) The government should manage the economy carefully.
(E) The government should not interfere in the interplay among the three forces affecting unemployment.
10. Which of the following best summarizes the main idea of the passage?
(A) We can and must take steps to ensure that the unemployment rate does not continue to rise as our population and our use of technology increase.
(B) Increases in potential production must be matched by increases in demand in order to maintain steady full employment.
(C) High unemployment is not an inevitable result of the pace of technological change but the consequence of passive public policy.
(D) If part of the national purpose is to reduce and contain unemployment, arithmetic is not enough.
(E) Full employment, regardless of fluctuations in the economy, is within the realm of possibility.
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