Unemployment Rate Formula

Unemployment Rate Formula (Table of Contents)

• Formula
• Examples
• Calculator

What is the Unemployment Rate Formula?

The term “unemployment rate” refers to the proportion of the labor force, which was actively seeking employment, but has been unemployed for the last four weeks. Most of the countries published the unemployment data every month as it is a good indicator to assess the direction of an economy. The formula for the unemployment rate is very simple and it can be derived by dividing the number of unemployed persons available for employment by the total number of employed and unemployed persons in the nation. Mathematically, it is represented as,

Now, as per the Bureau of Labor Statistics, a person can be defined to be employed only if he/ she:

• Is more than 16 years of age
• Works either for an employer or is self-employed
• Does not work as a volunteer
• Is not engaged in any kind of self-service

On the other hand, a person is identified to be unemployed only if he/ she:

• Is more than 16 years of age
• Is not engaged in any kind of employment (not even self-employed)
• Was actively seeking a job during the last four weeks

Examples of Unemployment Rate Formula (With Excel Template)

Let’s take an example to understand the calculation of the Unemployment Rate in a better manner.

Unemployment Rate Formula – Example #1

Let us take the example of the residents of the US to explain the concept of the unemployment rate. In the year 2018, around 155,761 thousand US residents were employed while around 6,314 thousand were unemployed. Calculate the unemployment rate in the US for the year 2018 based on the given information.

Solution:

Unemployment Rate is calculated using the formula given below

Unemployment Rate = No. of Unemployed Persons / (No. of Employed Persons + No. of Unemployed Persons)

• Unemployment Rate = 6,314 / (155,761 + 6,314)
• Unemployment Rate = 3.9%

Therefore, the unemployment rate in the US during the year 2018 stood at 3.9%.

Unemployment Rate Formula – Example #2

Let us an example of a country to understand the other intricacies of the unemployment rate. Let us assume that the information pertaining to the employment status of the country is available as on December 31, 20XX.

Based on the given information, calculate the unemployment rate of the country as on December 31, 20XX.

Solution:

No. of Unemployed Persons is calculated using the formula given below

No. of Unemployed Persons = Non-Institutionalized Civilian Population – Volunteers – Discouraged Workers – Not Actively Seeking Jobs During Last 4 Weeks – No of Employed Persons

•  No. of Unemployed Persons = 1,500,000 – 50,000 – 170,000 – 40,000 – 1,150,000
• No. of Unemployed Persons = 90,000

Unemployment Rate is calculated using the formula given below

Unemployment Rate = No. of Unemployed Persons / (No. of Employed Persons + No. of Unemployed Persons)

•  Unemployment Rate = 90,000 / (1,150,000 + 90,000)
•  Unemployment Rate = 7.26%

Therefore, the Unemployment Rate in the Country stood at 7.26% as of December 31, 20XX.

Unemployment Rate Formula – Example #3

Let us take an example of the US again where we have the information pertaining to the employment status for the year 2017.

Based on the given information, calculate the unemployment rate of the US for the year 2017.

Solution:

No. of Unemployed Persons is calculated using the formula given below

No. of Unemployed Persons = Non-Institutionalized Civilian Population – Not in Labour Force – No. of Employed Persons

• No. of Unemployed Persons = 255,079 – 94,759 – 153,337
• No. of Unemployed Persons = 6,983 thousand

Unemployment Rate is calculated using the formula given below

Unemployment Rate = No. of Unemployed Persons / (No. of Employed Persons + No. of Unemployed Persons)

• Unemployment Rate = 6,983 / (153,337 + 6,983)
• Unemployment Rate = 4.36%

Therefore, the unemployment rate in the US during the year 2017 stood at 4.36%.

Explanation

The formula for the unemployment rate can be calculated by using the following steps:

Step 1: Firstly, collect the data for the number of unemployed persons in the nation which will be available at the respective government websites.

Step 2: Next, collect the data for the number of employed persons in the nation which can also be noted from the government websites

Step 3: Next, calculate the total number of employable persons which is the simple addition of the number of unemployed and employed persons.

Step 4: Finally, the formula for the unemployment rate can be derived by dividing the number of unemployed persons available for employment by the total number of the employable workforce as shown below.

Unemployment Rate = No. of Unemployed Persons / (No. of Employed Persons + No. of Unemployed Persons)

Relevance and Uses of Unemployment Rate Formula

It is one of the most important indicators of the economic health of a nation. Although it is a lagging indicator, it provides a clear indication of the direction of the economy. Inherently, the unemployment rate is expected to increase when the economy is weak at which results in a scarcity of jobs. On the other hand, the unemployment rate is expected to fall when the economy is trending up. For instance, after the crisis of 2007-08, the unemployment in the US went up to 9.3% and 9.6% during 2008 and during 2009, which is one of the highest unemployment rates in the US during the last seven decades. As such, from the perspective of economists, the concept of the unemployment rate can be a good economic indicator.

Unemployment Rate Formula Calculator

You can use the following Unemployment Rate Formula Calculator

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