Employed people
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Unemployed people
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Labor force
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Unemployment rate
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Unemployment Calculator (Unemployment Rate)

By Tibor Pal - PhD candidate.

This unemployment calculator is a simple tool that helps you measure the unemployment rate as a percentage for a given country. You can quickly find out how to calculate the unemployment rate. If you read further, however, you can gain some insight into what factors influence the labor market and how the US unemployment rate formula and other connected indicators are designed. Besides, you can learn some practical information, such as what the current unemployment rate is for the US and what is the natural rate of unemployment.

What is the unemployment rate definition?

Occupation and career are one of the essential aspects in our life: typically, we begin to prepare for a vocation from our childhood, and, from that point on, we spend most of our life working until we retire. Most people rely on the financial compensation (salary) of their labor activity to keep their standard of living, and many people find personal accomplishment in their occupation. For these reasons, it is apparent that the loss of job and the ensuing state of unemployment can have a particularly adverse impact on a person's or a family's life. It can lower the quality of life, weaken self-esteem and, combined with the uncertainty about the future, can make daily life worrisome.

Looking from a broader perspective, unemployment can harm the economy as a whole, as well as the society: the more people who are faced with involuntary time off, the fewer goods and services that are delivered, therefore reducing the income generated in an economy. Consumption expenditure and investment (the two main components of the Gross Domestic Product) will then lower, which can hamper economic growth.

It is not surprising that unemployment is a leading concern in politics and economics. It is typically measured by the unemployment rate that is the fraction of the labor force that is away from work. Macroeconomists study how this variable changes, what the leading factors are behind this, and how it interacts with other variables.

How to calculate the unemployment rate?

Before we outline the unemployment rate formula, we shall provide some insight into its components. As usual, the initial and crucial step in forming economic indicators is obtaining the necessary inputs. Data collection related to the U.S. labor market is managed by the Bureau of Labor Statistics (BLS) through the Current Population Survey that involves about 60 thousand households. Based on this survey, the BLS categorizes the participants into three different groups, which are the main pillars of the final indicators:

  • Employed: This category covers paid employees, entrepreneurs, and unpaid workers in a family business.

  • Unemployed: It includes those who are not employed but available for work, and had tried to find a job during the previous four weeks.

  • Not in the labor force: This category consists of those who can not be classified into the first two categories, for example, full-time students, homemakers, or retirees.

From this information, the BLS defines the labor force as the sum of the employed and unemployed populations.

Labor force = (People employed + People unemployed) * 100

Afterward, as probably you already surmised, the unemployment rate is calculated simply as dividing the number of people unemployed by the labor force. Thus the unemployment rate formula is the following:

Unemployment rate = (People unemployed / Labor force) * 100

Besides, BLS also computes the labor-force participation rate which is the fraction of the population that has chosen to participate in the labor market.

Labor-force participation rate = (Labor force / Adult population) * 100

You can find this formula in our unemployment calculator's advanced mode.

The natural rate of unemployment

Economists are also interested in the normal level of unemployment rate associated with the long-term equilibrium on the labor market. It is called the natural rate of unemployment which is the difference between the number of people who would like to have a job of a certain wage and those who are willing and able to get a job. Therefore it consists of:

  • Frictional unemployment, which corresponds to those workers who are searching for new employment or are transitioning from one position to another, and
  • Structural unemployment which arises from the fact that a certain number of jobs available in some labor markets is insufficient to provide a job for everyone who wants one.

In general, the actual unemployment rate fluctuates around the natural rate of unemployment. The deviation between the two rates is cyclical unemployment, and is related to the short-term ups and downs of economic activity. Most economists believe that there is a short-run relation between the unemployment rate and inflation rate. One explanation is that when the actual unemployment rate is under its natural level, due to the tight labor market, wages tend to rise which generates a higher price level.

The graph below depict the historic level of US unemployment rate together with the long-term natural rate of unemployment.

Source: U.S. Bureau of Labor Statistics and Federal Reserve Bank of St. Louis

As you can see, the unemployment rate tends to vary over time as economic activity swings up and down. Although after 2008, as a result of the Global Financial Crisis, the national unemployment rate rose to the 10 percent level. By 2018, the unemployment rate had dropped below its natural level.

The above short overview shows that by providing and analyzing labor market indicators, economists and policymakers can monitor changes in the economy over time that allow them to conduct analysis and form adequate policy recommendations.

References

  • Mankiw, G. - Macroeconomics (8th edition) - 2012 - Worth Publishers
  • U.S. Bureau of Labor Statistics
Tibor Pal - PhD candidate.

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