Employment and unemployment — practice question

Liberia is a country in west Africa that has encountered several serious difficulties in recent years. These have included a civil war and, in 2014, the outbreak of the Ebola epidemic. However, there have also been some improvements. The unemployment rate was 85% in 2004 but had fallen to 4% in 2016. This fall has affected both emigration and wages. Workers have been paid higher wages, although some economists believe that these higher wages have pushed up the country’s inflation rate, which in 2016 was 8%. The country has a plentiful supply of drinking water and a climate that is favourable for agriculture. More than 70% of the country’s labour force is now employed in agriculture. The country’s main exports are rubber, iron ore, timber and gold. A US multinational company (MNC) operates the world’s largest individual natural rubber farming operation in Liberia. The price of rubber dropped by 75% between 2011 and 2016. Global rubber supply had risen above demand because a number of countries introduced import restrictions on rubber. In reaction to the lower price, the US MNC reduced its production, but it still made a loss. The MNC does not want to close down and is trying to survive by cutting costs. In the long term it aims to maximise profits. When some of its 7000 workers retire, they will not be replaced. The MNC has adopted new production techniques and diversified into growing cocoa and coffee. The Liberian government is giving subsidies to local rubber farmers so that they can buy new equipment and introduce new farming methods. Even though the situation is difficult, some local Liberian rubber farmers are expanding the scale of their operations by purchasing more land. Others are diversifying by using wood from rubber trees to make furniture. While supporting its rubber farmers, the Liberian government is also promoting growth in the secondary and tertiary sectors. Between 2014 and 2016 it increased spending on healthcare, but this came at the cost of several public sector investment projects. Table 1 compares the infant mortality rate and healthcare expenditure per head in selected countries in 2015.