# How To Calculate Unemployment Rate

The unemployment rate is a measure of how many people are not working out of the total labor force of a given country or population. In the US, people are considered ‘unemployed’ if they have not worked but are actively looking for a job over a period of four weeks. Long term unemployment is defined as not having worked for six months or longer.

The unemployment rate is an indicator of the health of the economy. It is a lagging indicator, meaning that it follows negative economic events, such as the recent coronavirus pandemic. As the economy suffers and jobs are in short supply, the unemployment rate will likely increase.

Unemployment data is collected by the U.S. Bureau of Labor Statistics, based on the monthly Current Population Survey (CPS). The Federal Reserve monitors this indicator to assess the health of the economy and help set monetary policy to change its course. Effecting more than just the unemployed individuals, higher unemployment creates a cascade of far-reaching economic effects due to the lowering of purchasing power and production of goods and services.

This article will help you determine the Unemployment Rate, how to calculate it step by step, and give you examples of how it is applied in decision-making situations.

## Unemployment Rate Formula

#### Unemployment rate= (Unemployed people / Total labor force) × 100

The Unemployment Rate is calculated by dividing the number of people unemployed by the total labor force and then multiplying by 100. This gives the unemployment rate as a percentage.

## Unemployment Rate Calculation Step by Step

1. Determine the number of people that are unemployed.

The unemployed population only includes those who are actively been looking for work for at least four weeks.

1. Determine the quantity of the total labor force.

The total labor force is the aggregate of both the unemployed and the employed population.

1. Divide the amount of unemployed by the total labor force and multiply by 100.

Tip: You can find this information from the U.S. Bureau of Labor Statistics website.

### Example

In 2020, the U.S. experienced a national health crisis from the coronavirus pandemic, which resulted in a massive exodus of people leaving the workforce due to economic shutdown.

We would like to calculate the average unemployment rate for the entire year of 2020.

Our research at the U.S. Bureau of Labor Statistics gives us the following information:

Report Series IDs: LNS11000000 & LNS13000000

To solve Unemployment Rate in January;

5,796164,455

= 0.035 x 100

=3.5%

The Unemployment Rate in January 2020 was 3.5%. Repeat this calculation for the rest of the year;

The average Unemployment Rate for 2020 can be calculated by adding the Unemployment Rates from each month and dividing by 12. This gives us the average Unemployment Rate of 8.1% over the year 2020 for the United States.