Formula for the unemployment rate

Government and the Macro‑economy

Employment and Unemployment

Understanding the level of unemployment in an economy is essential for evaluating the effectiveness of government policies and the overall health of the labour market. This note focuses on the formula used to calculate the unemployment rate, a key indicator used by economists and policymakers.

Key Definitions

• Employed: Persons aged 16 and over who did any work for pay or profit during the reference week, or who were temporarily absent from such work.
• Unemployed: Persons aged 16 and over who were not employed during the reference week, were available for work, and had taken specific steps to look for a job.
• Labour Force: The sum of the employed and the unemployed. It excludes people who are not seeking work (e.g., students, retirees, discouraged workers).

Formula for the Unemployment Rate

The unemployment rate expresses the proportion of the labour force that is unemployed and is calculated as follows:

\$U = \frac{U_n}{L} \times 100\%\$

where:

• \$U\$ = Unemployment rate (percentage)
• \$U_n\$ = Number of unemployed persons
• \$L\$ = Labour force (employed + unemployed)

Step‑by‑Step Calculation

1. Identify the total number of unemployed people (\$U_n\$) from the labour market survey.
2. Identify the total number of employed people (\$E\$) from the same source.
3. Calculate the labour force: \$L = U_n + E\$.
4. Insert the values into the formula \$U = \frac{U_n}{L} \times 100\%\$.
5. Round the result to one decimal place if required.

Example Calculation

Suppose a country reports the following figures for a given month:

Calculate the unemployment rate:

1. Labour force \$L = 12,500,000 + 1,250,000 = 13,750,000\$.
2. Unemployment rate \$U = \frac{1,250,000}{13,750,000} \times 100\% = 9.1\%\$ (rounded to one decimal place).

Interpretation of the Unemployment Rate

• A high unemployment rate indicates under‑utilisation of labour resources and may signal economic weakness.
• A low unemployment rate suggests a tight labour market, which can lead to upward pressure on wages.
• Policy makers use the unemployment rate to decide on fiscal and monetary interventions, such as stimulus spending or interest‑rate adjustments.