How to Calculate the Unemployment Rate Formula

Secrets of the Unemployment Rate

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Applicants wait to enter a job fair on June 11, 2012 in New York City. Some 400 people arrived early for the event held by National Career Fairs, and up to 1,000 people were expected by the end of the day.. Photo by John Moore/Getty Images

The unemployment rate is the number of unemployed divided by the total number of people in the civilian labor force. Before you can use the formula, you need to understand how all the terms are defined.

First, the number of unemployed is defined very specifically by the Bureau of Labor Statistics (BLS). To be counted as unemployed, you be over 16, and have been available to work full-time during the past four weeks.

Most important, you must have been actively looking for work during that same time period. The only exception is if you were temporarily laid off and simply waiting to be called back to that specific job.

The civilian labor force is also very specific. It includes all of the unemployed, plus the employed. You already know the definition of unemployment. Here's the definition of employment.

Now that you understand the terms, the formula is simple: 

Unemployment Rate = Unemployed / Civilian Labor Force.  

The BLS breaks out lots of other sub-groups of those who would like jobs, whether they're officially counted as unemployed or not. Make sure you are familiar with these so you don't get confused when the terms are used. They give you the full picture of the labor force in the United States. ​

Long-term unemployed: If you've been looking for a job for the past four weeks, and you've been without a job for six months or more.

 

Marginally attached to the labor force: If you haven't looked for work in the past four weeks, but you have looked for one sometime in the past year. 

Discouraged workers: If you've given up looking for work, you're no longer counted as unemployed. However, these discouraged workers would still like to have a full-time job.

They just feel they're too old, don't have the right skills, or will continue to be discriminated against.

The real unemployment rate included the marginally attached and therefore the discouraged workers. It also includes those who are working part-time, but would prefer full-time work. Many people say it is the true unemployment rate, because it counts everyone who would take a full-time job if it were offered. It really measures the slack in the labor force.

The labor force participation rate is similar to the unemployment rate. The only difference is that you take the number of employed and divide it by the civilian population. Here's more on the Labor Force Participation Rate: Formula and Examples.

You might be interested in these other types of unemployment and how they're calculated. First, the natural rate of unemployment is actually healthy. It includes three components:

  1.  Frictional unemployment, which is when people quit a job they don't like to get a better one.
  2. It also includes structural unemployment, which is when the job skills no longer match the new jobs being created. That's usually caused by, and also leads to, long-term unemployment.
  1. The third component is surplus unemployent, which is caused by minimum wage laws, unions and wage/price controls.

Cyclical unemployment is that usually most talked about in the media. That's because it rises, usually very quickly, during the contraction phase of the business cycle. By the time it takes off, a recession has already started. That's because unemployment is a lagging indicator. Business usually wait until they're sure demand won't come back before laying off their workers. Article updated November 8, 2015/

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