Knowing how to calculate the unemployment rate gives you a better understanding of how the unemployment rate works and its vital impact on the U.S. economy.
By definition, the unemployment rate is the number of jobless U.S. adults (ages 16-and-up) divided by the number of Americans employed in the civilian labor force. The rate is compiled monthly by the Bureau of Labor Statistics, and is released on the first Friday of every month.
American who are deemed "unemployed" in the BLS report have been jobless for the previous four weeks and who have actively been seeking a job during that four-week period. The BLS also includes a category for the "long-term unemployed" - jobless individuals who have gone without work for longer than six months, and who have actively been seeking work for the previous four weeks.
Unemployment Rate Formula
The formula for unemployment rate is: Unemployment Rate = Number of Unemployed Persons / Labor Force. The labor force is the sum of unemployed and employed persons. By dividing the number of individuals whom are unemployed by labor force, you'll find the labor force participation, or unemployment rate.
Here is each step broken down so that you can properly calculate the unemployment rate:
1. Divide the number of unemployed workers by the number of working and non-working individuals
For instance, if there are 4 million jobless Americans and 44 million Americans employed, simply divide 4 by 44 and you'll wind up with a decimal of .09.
2. Multiply the resulting decimal number by 100 to calculate the unemployment rate.
Here, you simply shift the decimal two slots to the left, as .09% becomes 9%.
3. Subtract the employment rate from 100 to calculate the U.S. employment rate.
In this instance, 100 minus 9 equals 91, meaning 91% of Americans who can work have a job.
Basically, calculating the unemployment rate is a matter of dividing the number of unemployed people by the total number in the labor force, then multiplying by 100.
That will give you the nation's unemployment rate - and a snapshot of the U.S. labor market.
What Are the Different Unemployment Categories?
The BLS calculates the unemployment rate using three different types of jobless categories:
1. Cyclical unemployment
This type of unemployment happens when the U.S. economy cannot provide enough jobs for every U.S. adults over the age of 16 who wants one.
2. Structural unemployment
This type of unemployment happens when the U.S. jobs market can't provide jobs for everyone who wants to work, because of what the BLS calls "mismatched" skill sets.
3. Frictional unemployment
This is the time period between employment when an unemployed individual is seeking a job or moving from one job to another.
What Workforce Surveys Are Used to Calculate Unemployment?
The U.S. jobless rate is also measured using two critical workforce surveys:
1. The Current Population Survey (CPS)
Otherwise known as the "household survey", the Current Population Survey is an employment sample of 60,000 households.
2. The Current Employment Statistics Survey (CES)
Otherwise known as the U.S. payroll survey, the Current Employment Statistics Survey is measured based on a sample of 160,000 U.S. companies and government agencies that represent 400,000 individual employees.
What Are the "U" Barometers?
The BLS also relies on six different employment barometers to arrive at the unemployment rate, as follows:
- U1: The percentage of labor force unemployed for 15 weeks or longer.
- U2: The percentage of the labor force who lost jobs or completed temporary work.
- U3: The official unemployment rate that occurs when people are without jobs and they have actively looked for work within the past four weeks.
- U4: The individuals described in U3 plus "discouraged workers," those who have stopped looking for work because current economic conditions make them think that no work is available for them.
- U5: the individuals described in U4 plus other "marginally attached workers," "loosely attached workers," or those who "would like" and are able to work, but have not looked for work recently.
- U6: the individuals described in U5 plus part-time workers who want to work full-time, but cannot due to economic reasons, primarily underemployment.