The unemployment rate is the number unemployed as a percentage of the labour force.
Employment means having paid work. Unemployment means being willing and able to work, and actively looking for a job, but not having one. People who are not looking for work, such as full-time students or retirees, are not counted as unemployed.
The labour force is everyone who is employed plus everyone who is unemployed. Full employment does not mean zero unemployment. It means a low rate, where the only unemployment is people briefly between jobs.
Unemployment is measured with a labour force survey. Officials ask a sample of households whether each adult worked, looked for work, and was available to start. The answers are used to estimate the totals for the whole country.
Unemployment rate = number unemployed / labour force x 100.
- Unemployed
- Willing and able to work, actively seeking work, but without a job.
- Labour force
- Employed + unemployed.
- Unemployment rate
- Unemployed / labour force x 100.
- Labour force survey
- Household survey used to measure unemployment.
Worked example: Calculating the unemployment rate
Suppose a country has 2.4 million people employed and 60,000 unemployed.
- Labour force = 2,400,000 + 60,000 = 2,460,000.
- Unemployment rate = 60,000 / 2,460,000 x 100 = about 2.4%.
- Note: divide by the labour force, not the whole population.
- Children, full-time students and retirees not looking for work are outside the labour force.
Watch out for this
A university student without a job is unemployed.
Only people actively looking for and available for work are unemployed. A full-time student who is not looking for work is outside the labour force.
Check your understanding
A country has a labour force of 5 million and 200,000 unemployed. What is the unemployment rate?
- 4%
- 0.04%
- 25%