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Unemployment Rate Formula

Updated on February 1, 2024
Article byHarsh Katara
Reviewed byDheeraj Vaidya, CFA, FRM

What Is The Unemployment Rate Formula?

The unemployment rate formula calculates the portion of the population of a country who are not working or are jobless despite actively looking for a job. When the skilled people with the ability to do certain jobs remain unemployment, they constitute the unemployment rate of the economy.

Unemployment-Rate-Formula

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Source: Unemployment Rate Formula (wallstreetmojo.com)

Identifying these numbers using the formula enables countries to learn about the population that is sitting idle despite having the skills and abilities. This, in turn, makes them implement strategies to improve the employment rate of the country and be as progressive as possible.

Key Takeaways

  1. The unemployment rate formula determines the percentage of the labor force that is employed or jobless and neither actively seeking employment nor working.
  2. The unemployment rate formula is used to measure the level of unemployment in the economy, such as discouraging workers, old age people, and dependent populations (under 15 years of age).
  3. It can be seen as a lagging indicator, which means that the number or rate will often change in response to shifting economic conditions rather than in front of them.

Unemployment Rate Formula Explained

The unemployment rate formula is used to gauge the unemployment prevailing in the economy. The numerator of the formula considers the number of unemployed people. Discouraged workers, 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.

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How To Calculate?

The unemployment rate lets nations calculate the percentage of the population that remains unemployed. As a result, the authorities implement strategies to tackle this rate and proceed towards becoming a nation with the lowest unemployment rate.

The formula used for calculation is:

Unemployment Rate = Unemployed People / Labor Force * 100

Where,

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

Hence, to figure out the unemployment rate to assess how much of the total population is not into a proper job, there are four steps to follow:

  • The first and foremost step is to identify the labor force. The labor force, here, includes the portion of the population that is 16 and above in age, actively looking for a job, or already employed somewhere. It is the figure that indicates the portion of an economy that wants to work and has the ability to work. It excludes people who are either incapable of doing a job or they do not meet the criteria for being included in the labor force, which include students, retired individuals, etc.
  • The second step is to calculate the number of unemployed people. Unemployed individuals in an economy are those who do not have a job but are looking for one willingly. Therefore, it can be said that everyone in the labor force who is unemployed comprises the number of unemployed people.
  • Once the number of unemployed people is known along with the total labor force in an economy, the next step is to divide the former by the latter.
  • The last step is to multiply the resultant in the third step with 100 if one desires to get the percentage form of the result. In short, this step is optional.

Examples

Let us consider the following examples to understand how to use the formula to calculate unemployment rate formula in economics:

You can download this Unemployment Rate Formula Excel Template here – Unemployment Rate Formula Excel Template

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

Example 1.1

= 11,978 /178,878 x 100

So the result will be –

Unemployment Rate Formula Example 1.2

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: 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 unemployed people, which can be calculated as per below:

Unemployment Rate Formula Example2.1

Unemployed Population = 8,20,75,000

The Labor Force will be –

 Example2.2

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

Unemployment Rate Formula Example2.3

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

So the result will be –

Example2.4

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.

ParticularsCountry ACountry B
Unemployed People274176.42246758.78
Employed People482341.00578809.20

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

Solution:

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:

 Example3.1

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 –

Unemployment Rate Formula Example3.2

= 12.54%

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

Example3.3

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

The rate for Country B will be –

Unemployment Rate Formula Example3.4

= 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
Labor Force
U
 

U=
Unemployed People
X100
Labor Force
0
X100= 0
0

Relevance and Uses

Using the unemployment rate formula helps an economy to identify the population that is willing to work but do not have a job. Based on the numbers obtained, the authorities try to provide opportunities to tackle the rate of unemployment and make their nations progressive.

Let us check below the relevance and uses of utilizing this formula for finding out the number of unemployed people:

Frequently Asked Questions (FAQs)

Is a 5% unemployment rate desirable?

Although there is no universal agreement on healthy unemployment, most experts believe that unemployment rates between 3% and 5% are optimum.

What makes a low unemployment rate undesirable?

A negative production gap, defined simply, indicates that the economy’s resources are not being fully utilized. A positive output gap, on the other hand, indicates that the market is overusing resources, and the economy as a whole is becoming inefficient.

What influences the rate of unemployment?

Factors like total demand, international competitiveness, education, automation, and demographics impact job creation and unemployment. These variables can impact the number of employees, the length of unemployment, and salary rates.

Recommended Articles

This has been a guide to what is the Unemployment Rate Formula. Here, we explain the concept with examples, how to calculate it, and its relevance & uses. You can learn more about macroeconomics from the following articles –