Formula to Calculate the Unemployment Rate
The unemployment rate formula calculates the share of people that are not working or is jobless of the total employed or unemployed labor force and is depicted as a percentage.
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For eg:
Source: Unemployment Rate Formula (wallstreetmojo.com)
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 people who are unemployed. 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 which includes only people are looking for work in the last four weeks and exclude others. So, when we have these two figures which are conducted through the survey, we can calculate the unemployment rate formula which is dividing unemployed people by the labor force. The lower the ratio the better it is.
Developing nations have higher rates when compared with the developed nation.
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: 11978
- Employed 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 below statistics after detailed research was conducted by the research department.
- Population of Country: 197000000
- Employed Population: 110000000
- Discourage Population: 1970000
- Volunteers: 2955000
Based on the above data, you are required to calculate the unemployed rate equation.
Solution:
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 people who are unemployed 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
So the result will be –
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 as a developing nation.
| Particulars | Country A | Country B |
|---|---|---|
| Unemployed People | 274176.42 | 246758.78 |
| Employed People | 482341.00 | 578809.20 |
The benchmark rate is 10%. You are required to determine which country among two will fall in the developing nation category.
Solution:
Here, we are given both the figures unemployed and employed people, however, we need to calculate the labor force in order 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.
| Unemployed People | |
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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. When the nation or the economy is not in good shape and when the jobs are less or scarce, the expectation would be the unemployment to rise.
When the economy of the nation 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 economic health of the nation whether the nation is heading towards recession with rising unemployment rate or is coming out of recession with falling rates as an indicator.
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