What Is the Unemployment Rate Formula?

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. The U.S. Bureau of Labor Statistics has a specific definition of “unemployed” for determining this percentage.

You must be older than age 16 and have been available to work full time during the past four weeks to be counted as unemployed. You must have actively looked for work during that same period. The only exception is being temporarily laid off and waiting to be called back to a specific job.

What Is the Unemployment Rate?

The U.S. unemployment rate by year shows the percentage of unemployed people in the U.S. population per year, tallied in December of each year. It gives a broad-stroke review of how high national unemployment was in that 12-month period. For example, the unemployment rate reached 14% to 24.8% during the Great Depression.

Note

Besides the Great Depression, the only other year the unemployment rate ended above 10% was 1982, when it was 10.8%.

Unemployment statistics reveal that the rate was 5.2% in August 2021. It had reached 14.8% in April 2020 due to the COVID-19 pandemic.

The chart below tracks the annual unemployment rate from 1929 through 2020.

How Do You Calculate the Unemployment Rate?

The standard unemployment rate equals the number of unemployed workers, divided by the available civilian labor force, at any given point in time.

How the Unemployment Rate Works

The “real” unemployment rate, also known as the “U-6 unemployment rate,” includes those who are working part-time but would prefer full-time work. Many people feel that this is the true unemployment rate because it counts everyone who would take a full-time job if one were offered. It’s an effective way of measuring the slack in the labor force.

Note

The BLS calculates several alternative unemployment rates. One is the “real” unemployment rate, which includes marginally attached and discouraged workers.

Unemployed individuals can fall into one of three categories:

  • Long-term unemployed: This includes people who have been looking for a job for at least the past four weeks and have been without a job for 27 weeks or more. 
  • Marginally attached to the labor force: This includes those who haven’t looked for work in the past four weeks but have looked sometime in the past year.
  • Discouraged workers: These workers have looked for work in the past year, but not in the past four weeks, so they’re no longer counted as unemployed. Discouraged workers would still like to have a full-time job but have quit looking.

Another use for the unemployment rate is to calculate the misery index. This index is the combination of the unemployment rate and inflation. While it is intended to indicate the amount of economic stress an average person feels, it isn’t an accurate picture of current economic conditions because unemployment is a lagging indicator. This makes the misery index one as well.

Unemployment Rate vs. Labor Force Participation Rate

The labor force participation rate is similar to the unemployment rate. The only difference is that it takes the number of employed persons and divides it by the civilian population to find the labor force participation rate.

The civilian population number used in the labor force participation rate does not include anyone that is an inmate in a prison, psychiatric care facility, or other type of institution.

The number also does not include those who reside in long-term care facilities, homes for older people, or anyone that is an active duty member of the Armed Services.

Types of Unemployment

There are several types of unemployment. Frictional unemployment accounts for voluntary job turnover, such as when people quit a job they don’t like to get a better one. Structural unemployment occurs when job skills no longer match any new jobs available. It’s usually caused by long-term unemployment and can also lead to it.

Cyclical unemployment is the type the media talks about most. It rises dramatically during the contraction phase of the business cycle. A recession has already started by the time the unemployment rate rises because it is a lagging indicator. Companies wait until they’re sure demand won’t return to previous levels before laying off workers. 

Key Takeaways

  • The unemployment rate formula is the number of unemployed workers divided by the available civilian labor force at that time.
  • A worker must be older than age 16 and have been able and available to work full time in the last four weeks to be considered unemployed by BLS standards.
  • Cyclical unemployment rises dramatically during the contraction phase of the business cycle, and this is the rate that the media often refers to.

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