Suppose 25,000 persons become unemployed. You are given the following data about the length of unemployment spells in the economy:
Duration of Spell
(in months) Exit Rate
1.............................. 0.60
2.............................. 0.20
3.............................. 0.20
4.............................. 0.20
5.............................. 0.20
6.............................. 1.00
where the exit rate for month t gives the fraction of unemployed persons who have been unemployed t months and who "escape" unemployment at the end of the month.
(a) How many unemployment-months will the 25,000 unemployed workers experience?
(b) What fraction of persons who are unemployed are "long-term unemployed" in that their unemployment spells will last 5 or more months?
(c) What fraction of unemployment months can be attributed to persons who are long-term unemployed?
(d) What is the nature of the unemployment problem in this example: too many workers losing their jobs or too many long spells?