The formula for unemployment rate is equal to the number of unemployed in the country divided by the number of workers in the civil labor force.
Unemployment Rate Definition and Examples
The U.S. The U.S. unemployment rate by year is the percentage of the U.S.
For the U.S. Bureau of Labor Statistics to calculate this percentage, you must meet a certain definition of “unemployed”. You must have been older than 16 years old and be available to work at full time during the last four weeks in order to be considered unemployed. You must have actively sought work in that time frame. Only if you are temporarily laid off, and wait to be called to a particular job.
Note:
In December, the unemployment rate is calculated. The unemployment rate is a general overview of the national level during that period.
Statistics show that unemployment rates were 4.2% in November 2021. The COVID-19 pandemic had caused the rate to reach 14.8% by April 2020, but it had dropped to 6.7% at year-end.
The graph below shows the annual unemployment rates from 1929 to 2020.
How do you calculate the unemployment rate?
Unemployment Rates and How they Work
The unemployment rate is a measure of the number of people looking for work, but who don’t currently have one. This is a lagging measure, which means it follows economic conditions rather than precedes them.
Unemployment Types
There are different types of unemployment. Frictional Unemployment is the result of voluntary job turnover. For example, when people leave a job that they dislike to get a new one. Structural Unemployment is when the skills of a person do not match with jobs available. Long-term unemployment is usually the cause, but it can also be a factor.
Cyclical unemployment, is the topic that media most often discusses. The rate of unemployment rises sharply during the contraction phase. The unemployment rate is a lagging measure, so it will already be a recession by the time it rises. Before they start laying off employees, companies wait to be sure that the demand will not return to its previous level. 5
Unemployed people can be classified into three different categories:
- Long-term Unemployed: People in this group have been looking for work for at least four weeks, and without a position for 27 weeks. 6
- Marginally Attached to the Labor Force: This includes people who have not looked for a job in the last four weeks, but have done so at some point in the last year.
- Discouraged workers: These employees have not looked for a job in the last four weeks but they did in the previous year. They are no longer considered unemployed. The discouraged workers still want a full-time position, but have stopped looking. 8
The BLS has several different methods of calculating unemployment. The “real” rate of unemployment includes discouraged and marginally attached workers. The “real” rate of unemployment is also called the “U-6 rate.” This includes people who work part-time, but would like to be employed full-time. 9
Note:
Many people believe that the U-6 rate is the real unemployment rate, because it includes everyone who would accept a full-time position if they were offered one. This is a good way to measure the slack of the labor market.
Calculating the misery index is another way to use the unemployment rate. The unemployment rate is combined with inflation to create the misery index. The index is meant to show how much economic stress a person feels. However, it’s not an accurate representation of economic conditions because unemployment is also a lagging factor.
What is the difference between the unemployment rate and the labor force participation rate?
The rate of labor force participation is comparable to the unemployment rate. This tells you how many people are in the workforce at any given time. Divide the number of people employed by the civilian population to find this figure.
The number of civilians used to calculate the rate of labor force participation does not include those who are in prisons, psychiatric care facilities, or any other institution. This number does not include people who live in long-term-care facilities, homes for elderly people or active-duty members of the armed forces.
The Key Takeaways
- The formula for calculating the unemployment rate is to divide the number of unemployed workers by the civilian labor force available at the time.
- BLS’s standards require that a worker be at least 16 years old and able to work full time in the past four weeks.
- Media often mention the cyclical unemployment rate, which is a dramatic increase during the contraction phase.
