Definition and Examples of the Unemployment Rate
The unemployment rate in the United States shows the percentage of individuals in the population who are without a job in a specific year. According to the U.S. Bureau of Labor Statistics, in order to be considered unemployed, one must be over 16 years old, available to work full-time in the past four weeks, and must have actively searched for employment during that time. An exception is made for those temporarily laid off and waiting to be called back to a specific job. The unemployment rate provides a general overview of the level of national unemployment over a 12-month period. For instance, during the Great Depression, the unemployment rate varied from 14% to 24.8%. In 1982, the rate hit 10.8%, while as of November 2021, it was at 4.2%. The unemployment rate had spiked to 14.8% in April 2020 due to the COVID-19 pandemic but dropped to 6.7% by the end of the year.
How Is the Unemployment Rate Calculated?
The standard unemployment rate is determined by dividing the number of unemployed individuals by the civilian labor force available at a specific point in time. This rate indicates the portion of individuals seeking employment but unable to secure a job. It usually lags behind economic conditions rather than precedes them.
Types of Unemployment
There are various forms of unemployment. Frictional unemployment occurs when individuals voluntarily switch jobs to seek better opportunities. Structural unemployment arises when job skills no longer match available positions. Cyclical unemployment is prominently discussed in the media and surges during the business cycle's contraction phase. Those who are unemployed can fall into three categories: long-term unemployed, marginally attached to the labor force, and discouraged workers. The "real" unemployment rate, also known as the "U-6 rate," includes part-time workers seeking full-time jobs, marginally attached individuals, and discouraged workers, providing a comprehensive view of the labor force.
Understanding the Unemployment Rate vs. Labor Force Participation Rate
The labor force participation rate is akin to the unemployment rate but indicates the proportion of individuals in the labor force at a particular time. This figure is calculated by dividing the number of employed individuals by the civilian population, excluding specific groups like prisoners, psychiatric care patients, and those in military service. The unemployment rate formula comprises the number of unemployed individuals divided by the available civilian labor force, with the rate often reflecting cyclical unemployment during economic contractions.
