Formula to Calculate the Unemployment Rate

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Where,

  • U is the Unemployment rate.The labor force consists of both employed and unemployed.

Explanation

It is used to gauge the unemployment prevailing in the economy. The numerator of the formula considers the number of unemployed people. Discourage employees, volunteers, and people who don’t have matching skills and are aged and old are generally removed from the unemployed figure calculation and can also be removed from the labor force. The denominator of the equation states the labor force, which is the number of people, whether it is employed or unemployed.

Some ratios can be based on an active labor force that includes only people looking for work in the last four weeks and excludes others. So, when we have these two figures conducted through the survey, we can calculate the unemployment rate formula, dividing unemployed people by the labor force. The lower the ratio, the better it is.

Developing nations have higher rates when compared with developed nations.

Examples

Example #1

Suppose that the total number of unemployed people was 11,978 thousand and the total number of employed was 166,900 thousand. You are required to calculate the unemployment rate based on given numbers.

Solution:

Use the following data for the calculation of the unemployment rate formula.

  • Unemployed People: 11978Employed People: 166900

We are given the total number of unemployed people, which is 11,978 thousand, and now we need to calculate the labor force.

The labor force is nothing but the sum of unemployed and employed people which is 11,978 and 166,900 which equals 178,878 thousand.

We will now use the above equation to calculate the (U) rate

= 11,978 /178,878 x 100

So the result will be –

Hence, unemployment was 6.70%.

Example #2

The Labor Department of Pakistan has reported the below statistics after the research department conducted detailed research.

  • Population of Country: 197000000Employed Population: 110000000Discourage Population: 1970000Volunteers: 2955000

Based on the above data, you are required to calculate the unemployed rate equation.

Here, we are given the total of people who are employed which is 11,00,00,000.

We need to find out the number of unemployed people, which can be calculated as per below:

Unemployed Population = 8,20,75,000

The Labor Force will be –

Labor force is nothing but sum of unemployed and employed people which is 8,20,75,000 and 11,00,00,000 which equals to 19,20,75,000.

We will now use the above formula to calculate the unemployment rate

=8,20,75,000 / 19,20,75,000 x 100

Hence, the U rate was 42.73%

Example #3

Below are the statistics of the two countries. The country with a higher unemployment rate than the benchmark rate will be considered a developing nation.

The benchmark rate is 10%. Next, you must determine which country among the two will fall in the developing nation category.

Here, we are given both the figures of unemployed and employed people. First, however, we need to calculate the labor force to calculate the unemployment rate equation.

Calculation of the unemployment rate for Country A can be done as follows:

The labor force is nothing but the sum of unemployed people and employed people.

Unemployment Rate UA formula = 2,74,176.42 / 21,86,335.34 x 100

The unemployment for Country A will be –

= 12.54%

Calculation of the unemployment rate for Country B can be done as follows:

UB = 2,46,758.78 / 23,85,891.46 x 100

The rate for Country B will be –

= 10.34%

Both countries have a U rate greater than 10% and hence both of the countries will fall in the developing nation category.

Unemployment Rate Calculator

You can use the following unemployment rate calculator.

Relevance and Uses

It can be considered as a lagging indicatorLagging IndicatorLagging indicators are used to identify long-term trends or economic patterns by referencing to a series of economic activities that occurred in the past. They can’t predict the future because lagging indicators only shift when major economic events occur.read more which means that the figure or the rate shall generally fall or rise in the wake of changing conditions of the economy instead of anticipating them. For example, unemployment would be expected to rise when the nation or the economy is not in good shape and when the jobs are less or scarce.

When the nation’s economy is growing at a rate that is healthy, and jobs are not scarce or, in other words, are relatively plentiful, then the expectation would be that the unemployment rate will fall. These kinds of indicators are used to gauge the nation’s economic health, whether the nation is heading towards recession with a rising unemployment rate or is coming out of recession with falling rates as an indicator.

This has been a guide to the unemployment rate formula. Here we learn how to calculate the unemployment rate using its formula and examples and a downloadable excel template. You can learn more about macroeconomics from the following articles –

  • Taylor RuleTaylor RuleTaylor rule helps the Central bank to set short term interest rates when the inflation rate doesn’t match with the expected inflation rate. It suggests Central Bank the time to increase the interest rates.read moreStructural UnemploymentExamples of EconomicsExamples Of EconomicsEconomic examples will help you gain insight into the various economic theories and factors and their impact on the overall economy. Some of these factors illustrated are opportunity cost, demand and supply, sunk cost, the law of diminishing marginal utility and the trade war.read moreEconomic FactorsEconomic FactorsEconomic factors are external, environmental factors that influence business performance, such as interest rates, inflation, unemployment, and economic growth, among others.read moreBudget Deficit FormulaBudget Deficit FormulaBudget Deficit is the shortage of revenue against the expenses. The budgetary deficit could be the sum of deficit from revenue and capital account. read more