How Is Unemployment Rate Calculated?

The unemployment rate formula is the number of unemployed people in the country, divided by the total number of workers available in the civilian labor force.

In simple terms, the unemployment rate for any area is the number of area residents without a job and looking for work divided by the total number of area residents in the labor force.

How to Calculate the Unemployment Rate

Why is the unemployment rate important?

The unemployment rate is important because unemployment can affect the economy and individual people. Here are the ways that the unemployment rate affects both the economy and individuals:

Unemployment effect on the economy

The unemployment rate is a lagging indicator, or an indicator of how an economic event affected employment during a certain time period. For example, a recession is an economic event, and high unemployment rates are the lagging indicator of the effects of the recession. This also indicates that unemployment will steadily rise for a period of time even after the recession is over.

Additionally, the Federal Reserve uses the unemployment rate to gauge the overall health of the economy when it establishes a monetary policy. This policy is used to manage economic growth, inflation and unemployment.

Unemployment effect on the individual

What is the unemployment rate?

The unemployment rate is a representation as a percentage of the number of unemployed persons in the labor force. People who do not have jobs, are actively looking for work or are currently available for work but not working are considered unemployed. The government also considers people who are waiting to be recalled to a position that they were temporarily placed on leave from as unemployed.

The United States reports the unemployment rate by year, which is published in December of each year. This yearly rate shows the average of unemployed persons in the nation during the previous year. In all years except two, the unemployment rate has remained below 10%. The two instances in which the unemployment rate was higher than 10% were during the Great Depression and in 1982.

How does the unemployment rate work?

The U.S. Bureau of Labor Statistics (BLS) calculates a few different unemployment rates. The primary, or official, unemployment rate is the rate that the government uses to make decisions, such as the monetary policy. This is the traditional rate that only includes the unemployment of persons who have no job but are actively seeking employment.

Another type of unemployment rate calculated by the BLS is the “real” unemployment rate, which factors in both truly unemployed individuals and those who work part-time but wish to work full-time. This shows an accurate idea of everyone in the nation who would like to work a full-time job if it were available.

The BLS incorporates three different categories of unemployed people into its calculations of the “real” unemployment rate:

How to calculate the unemployment rate

The following are the steps to take when calculating the unemployment rate in the United States:

1. Determine the percentage of people in the labor force

The first step in calculating the unemployment rate is to calculate the total percentage of individuals in the labor force, or those who are currently working. To do so, divide the number of individuals working by the total working-age population. You then multiply this number by 100 to get the percentage.

2. Find the percentage of individuals out of the labor force

Next, you must determine the total percentage of individuals who are not currently working because they are out of the labor force. To do so, divide the number of people out of the labor force by the total working-age population. Then multiply this number by 100 to get the percentage.

3. Divide the number of unemployed persons by the number of employed persons

Using the information obtained in the first two steps, divide the total number of unemployed individuals by the total number of those in the labor force. Then multiply this number to get the unemployment rate.

Example of calculating the unemployment rate

The following is an example of how to calculate the unemployment rate:

There are 150 million people in the labor force and a total of 250 million people of working age in a country. There are also 90 million people out of the labor force and eight million people who are unemployed.

With this information, we can calculate the unemployment rate as follows:

150 million / 250 million = 0.6
Percentage currently employed: 60%

90 million / 250 million = 0.36
Percentage no longer in the labor force: 36%

8 million / 150 million = 0.053
Unemployment rate = 5.3%

FAQ

Who is not counted in the unemployment rate?

The unemployment rate measures the share of workers in the labor force who do not currently have a job but are actively looking for work. People who have not looked for work in the past four weeks are not included in this measure.

How do you calculate employment rate?

Calculate the employment rate. Divide the number of employed people by the total labor force. Multiply this number by 100. The result of these calculations is the employment rate.

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