How to Calculate the Unemployment Rate
To calculate the unemployment rate, we can follow a simple three-step process: First, we calculate the civilian labor force. Second, we identify the number of unemployed people. And Third, we divide the number of unemployed people by the civilian labor force.
1. Finding the Civilian Labor Force
The civilian labor force includes all people aged 16 or older who are willing and able to work. That means it does not include retired workers, students, institutionalized people, and people who are simply not looking for a job. In addition to that, the civilian labor force also excludes active-duty military personnel.
To illustrate this, think of an imaginary country called Smolland. As the name suggests, Smolland is small and only has 100 inhabitants. Out of those 100 people, 25 are children below the age of 16, 7 are full-time students, 5 are active-duty military personnel, 8 are stay-at-home parents, 2 are currently in prison, and 12 are retired. Now, neither of those people are classified as members of the labor force because they’re either not willing or not able to work for various reasons. Instead, the civilian labor force consists of the remaining part of the population, which is 50 people in this case.
2. Finding the Number of Unemployed People
According to the Bureau of Labor Statistics, people are classified as unemployed if they are not employed but available and actively looking for a job. That means, the number of unemployed people includes all members of the civilian labor force who are not currently employed by either a private company or a government institution other than the military.
In the case of Smolland, we already know that the labor force consists of 50 people. Now, assume that out of those 50 people, 35 are employed by private companies, and 13 work for the government. In that case, the remaining 2 people are classified as unemployed.
3. Dividing the Number of Unemployed People by the Civilian Labor Force
To calculate the unemployment rate we can now simply divide the number of unemployed people by the civilian labor force. Note that this gives us the decimal version of the unemployment rate. That means we still have to multiply the result by 100, to get an actual percentage rate.
For example, we have determined that Smolland has a civilian labor force of 50 people. Out of those 50 people, 2 are currently unemployed. Therefore, the country’s unemployment rate can be calculated as 2 divided by 50, which is equal to .04. Or in other words, we can say that Smolland’s unemployment rate currently stands at 4%.
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