Michigan now holds a dubious record: It leads the U.S. in joblessness. The state’s unemployment rate was 8.5% in May while the U.S. unemployment rate was only 5.5%. The reason is clear: Detroit’s emphasis on big trucks and sport-utility vehicles has turned sour. But even though the official unemployment numbers look awful, the reality is worse. The official number does not reflect those who have given up looking for a job.
a. Why is the reality of the unemployment problem in Michigan actually worse than the 8.5% unemployment rate statistic?
b. Is this higher unemployment rate in Michigan frictional, structural, or cyclical? Explain.