Unemployment Rate

DEFINITION of 'Unemployment Rate'

Unemployment is defined most basically as the percentage of the total labor force that is unemployed but actively seeking employment and willing to work.

BREAKING DOWN 'Unemployment Rate'

As defined by the International Labor Organization (ILO), an unemployed person is someone who is actively looking for work but does not have a job. The unemployment rate is a measure of the number of people who are both jobless and looking for a job. This measurement is considered a lagging indicator, confirming but not foreshadowing long-term market trends.

To be considered actively looking for a job a person must be in contact with employers, getting interviews, reaching out to government employment agencies, or simply sending out applications four weeks prior to polling or who are in college. Economists prefer this measure because it controls for increases or decreases in population. However, for the lay-person the unemployment rate should be considered as one measure among several to consult among many when trying to understand the number of jobless. 

Unemployment is measured in a number of ways in the U.S.: labor force sample surveys, Social Insurance statistics, which are numbers drawn from the number of people drawing unemployment benefits and other welfare programs, and employment office statistics which measure the number of people who come into unemployment offices looking for work. When calculating the official unemployment rate, the Bureau of Labor Statistics consider all the information gathered by these methods to provide a holistic picture of the labor market and the challenges facing workers. 

In particularly tough economic times, the unemployment rate may be lower than the number of people out of work because the official rate only includes those actively looking for work. Those workers who have become discouraged and dropped out of the labor force are not counted in unemployment statistics. For the same reason, men or women who do not work for an employer, but work fulltime at home raising children are not factored into the official unemployment number.

Finding the Unemployment Rate

In the United States, the Bureau of Labor Statistics conducts a monthly survey of roughly 50,000 households called the Current Population Survey (CPS), and uses the results they get from that survey to produce the number for the unemployment rate. Expressed as a percentage, the rate of unemployment is found by dividing the number of unemployed workers by the total labor force, and multiplying it by 100%.

From 1948 to 2004, the monthly U.S. unemployment rate has ranged between about 2.5% to 10.8%, averaging approximately 5.6%. That average is not a sign of consistent economic woes for the U.S. because some degree of unemployment, even in highly developed countries is to be expected. Unemployment also comes in different varieties, such as frictional and structural and seasonal. Agricultural jobs are often seasonal, so the seasonal unemployment rate often increases during winter months.

Frictional unemployment refers to the time and energy it takes to get a job that contributes to a person being unemployed for a moderate period of time, while structural unemployment refers to a mismatch in the supply and demand of labor, for example when there simply isn’t much of a demand for labor or when there is a dearth of skilled labor to be hired. 

Economists and policy makers get concerned when the unemployment rises above that of the natural unemployment rate, an estimate of what normal unemployment would be in comparison to a countries GDP when measured in the long run. 

RELATED TERMS
  1. Structural Unemployment

    A longer-lasting form of unemployment caused by fundamental shifts ...
  2. Workers' Compensation

    Workers' compensation is a publicly-sponsored system that pays ...
  3. Unemployment Income

    An insurance benefit that is paid as a result of a taxpayer's ...
  4. National Average Wage Index - NAWI

    An index calculated annually by the Social Security Administration ...
  5. Misery Index

    A measure of economic well-being for a specified economy, computed ...
  6. Natural Unemployment

    The lowest rate of unemployment that an economy can sustain over ...
Related Articles
  1. Economics

    5 Economic Challenges Spain Faces in 2016

    Learn about five economic challenges Spain faces in 2016 and what they mean for Spain's economy in light of recent elections and changes in government.
  2. Mutual Funds & ETFs

    Vanguard Equity Funds Overview

    Read a detailed description about Vanguard Group's stock-based mutual funds, the company philosophy and why the company embraces an indexed strategy.
  3. Economics

    How The Unemployment Rate Affects Everybody

    Depending on how it's measured, the unemployment rate is open to interpretation. Learn how to find the real rate.
  4. Home & Auto

    How Much Money Do You Need to Live in NYC?

    Learn how much money you need to meet basic expenses in New York City as a student, as a professional and as an unemployed job seeker.
  5. Home & Auto

    How Much Money Do You Need to Live in Los Angeles?

    Learn how much money it takes to live in Los Angeles and how that amount varies based on whether you are a student, professional or unemployed job-seeker.
  6. Home & Auto

    How Much Money Do You Need to Live in Alaska?

    Learn the average costs for necessities in Alaska, and understand how much money you need to live as a student, professional and unemployed job seeker.
  7. Economics

    America's Poorest States in 2015

    Learn the reasons Mississippi, New Mexico, Louisiana, Georgia and Kentucky are the poorest states in the United States, as of 2015.
  8. Economics

    Examining The Phillips Curve

    This model depicts an inverse relationship between unemployment and wage inflation, but is it accurate?
  9. Economics

    What You Need To Know About The Employment Report

    This widely watched indicator of economic well-being directly influences the market.
  10. Forex Education

    How To Trade Forex On News Releases

    When economic data comes out, it can have a marked impact on the currency market. Find out how to profit.
RELATED FAQS
  1. How does the U.S. Bureau of Labor Statistics calculate the unemployment rate published ...

    The unemployment rate is one of the most closely followed indicators, used by businesses, investors and private citizens ... Read Full Answer >>
  2. What are some of the key shortcomings of how the U.S. unemployment rate is determined ...

    Each month, the Bureau of Labor Statistics (BLS), a division of the U.S. Department of Labor, announces the unemployment ... Read Full Answer >>
  3. What is the key difference between the participation rate and the unemployment rate?

    The participation rate and unemployment rate are economic metrics used to gauge the health of the U.S. job market. The key ... Read Full Answer >>
  4. Do rising unemployment rates tend to increase or decrease investor sentiment and ...

    Rising unemployment rates tend to decrease investor sentiment and consumer confidence. Unemployment is one of the most important ... Read Full Answer >>
  5. What caused the stock market crash of 1929 that preceded The Great Depression?

    The stock market crash of 1929 was due to a market that was overbought, overvalued and excessively bullish, rising even as ... Read Full Answer >>
  6. What economic indicators are important for investing in the automotive sector?

    The most important economic indicators for investing in the automotive sector are auto sales, the unemployment rate, consumer ... Read Full Answer >>
  7. How can investors use trends in the unemployment rate to evaluate the outlook of ...

    Credit services companies provide financial services in the form of credit and loans to individuals and businesses; these ... Read Full Answer >>
  8. What does the Bureau of Labor Statistics do?

    The Bureau of Labor Statistics (BLS) is an agency of the U.S. Department of Labor that has been in operation since 1884. ... Read Full Answer >>
Hot Definitions
  1. Black Swan

    An event or occurrence that deviates beyond what is normally expected of a situation and that would be extremely difficult ...
  2. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  3. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
  4. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
  5. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
Trading Center