Definition and Examples of the Unemployment Rate
TheU.S. unemployment rate by yearshows the percentage of people in the U.S. population who are unemployed in a given year.
The U.S. Bureau of Labor Statistics has a specificdefinition of "unemployed" for determining this percentage: You must beolder than age 16 and available to work full-time during the past four weeks to be counted as unemployed. You musthave actively lookedfor work duringthat same time period.The only exception is being temporarily laid off and waiting to be called back to a specific job.
Note
The unemployment rate is tallied annually in December. It gives a broad-stroke review of how high national unemployment was in that 12-month period.
For example, the unemployment rate was 14% to 24.8% during the Great Depression.
Other than the Great Depression, the only other year that ended with an unemployment rate above 10% was 1982, when it was 10.8%.
Unemployment statisticsshow that the rate was 4.2% as of November 2021. It had reached 14.8% in April 2020 due to the COVID-19 pandemic but had fallen to 6.7% by year's end.
The chart below tracks the annual unemployment rate from 1929 through 2020.
How Do You Calculate the Unemployment Rate?
The standard unemployment rate equals the number of unemployed workers, divided by the available civilian labor force, at any given point in time.
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How the Unemployment Rate Works
The unemployment rate tells you the proportion of people who want work but don't have a job. It's typically a lagging indicator, following economic conditions instead of preceding them.
Types of Unemployment
There are several types of unemployment. Frictional unemploymentaccounts for voluntary job turnover, such as when people quit a job they don't like so they can get a better one. Structural unemploymentoccurs when job skills no longer match any jobs that are available. It'susually caused by long-term unemployment, and it can also lead to it.
Cyclical unemploymentis what the media talks about most. Itrises dramatically during the contraction phase of the business cycle. A recession has already started by the time the unemployment rate rises, because it is a lagging indicator. Companies wait until they're sure that demand won't return to previous levels before they lay off workers.
Unemployed individuals can fall into one of three categories:
- Long-term unemployed:This group includes people who have looked for a job for at least the past four weeks and have been without a job for 27 weeks or more.
- Marginally attached to the labor force:This group includes those who haven't looked for work in the past four weeks but have looked sometime in the past year.
- Discouraged workers:These workers have looked for work in the past year, but not in the past four weeks, so they're no longercounted as unemployed. Discouraged workers would still like to have a full-time job, but they've quit looking.
The BLS calculates several alternative unemployment rates. One is the“real” unemployment rate, which includes marginally attached and discouraged workers. The "real" unemployment rate is also known as the "U-6 unemployment rate." It includes those who areworking part-time but would prefer full-time work.
Note
Many people feel that the U-6 is the true unemployment rate because it counts everyone who would take a full-time job if one were offered to them. It’s an effective way of measuring the slack in the labor force.
Another use for the unemployment rate is to calculate the misery index. This is the combination of theunemployment rateandinflation. It's intended to indicate the amount of economic stress an average person feels, but it isn't an accurate picture of economic conditions, because unemployment is a lagging indicator, which makes the misery index one as well.
Difference Between the Unemployment Rate and the Labor Force Participation Rate
The labor force participation rate is similar to the unemployment rate. It tells you the proportion of people in the labor force at a given time. To find this figure, divide the number of employed people by the civilian population figure.
The civilian population number used in the labor force participation rate does not include anyone who is an inmate in a prison, is in a psychiatric-care facility, or is in any other type of institution. The number also does not include those who reside in long-term care facilities or homes for older people, or anyone who is an active-duty member of the armed services.
Key Takeaways
- The unemployment rate formula is the number of unemployed workers, divided by the available civilian labor force at that time.
- A worker must be older than age 16 and have been able and available to work full-time in the last four weeks to be considered unemployed by BLS standards.
- Cyclical unemployment rises dramatically during the contraction phase of the business cycle, and this is the rate that the media often refers to.
