How Economists Define and Compute Unemployment Rate Quiz

PDF page 173: people are not working because they are rearing children, ill, on vacation, or on parental leave. The point is that we do not just divide the adult population into employed and unemployed. A third group exists: people who do not have a job, and for some reason—retirement, looking after children, taking a voluntary break before a new job—are not interested in having a job, either. It also includes those who do want a job but have quit looking, often due to discouragement due to their inability to find suitable employment. Economists refer to this third group of those who are not working and not looking for work as out of the labor force or not in the labor force. The U.S. unemployment rate, which is based on a monthly survey carried out by the U.S. Bureau of the Census, asks a series of questions to divide the adult population into employed, unemployed, or not in the labor force. To be classified as unemployed, a person must be without a job, currently available to work, and actively looking for work in the previous four weeks. Thus, a person who does not have a job but who is not currently available to work or has not actively looked for work in the last four weeks is counted as out of the labor force. Employed: currently working for pay Unemployed: Out of work and actively looking for a job Out of the labor force: Out of paid work and not actively looking for a job Labor force: the number of employed plus the unemployed

PDF page 173: people are not working because they are rearing children, ill, on vacation, or on parental leave. The point is that we do not just divide the adult population into employed and unemployed. A third group exists: people who do not have a job, and for some reason—retirement, looking after children, taking a voluntary break before a new job—are not interested in having a job, either. It also includes those who do want a job but have quit looking, often due to discouragement due to their inability to find suitable employment. Economists refer to this third group of those who are not working and not looking for work as out of the labor force or not in the labor force. The U.S. unemployment rate, which is based on a monthly survey carried out by the U.S. Bureau of the Census, asks a series of questions to divide the adult population into employed, unemployed, or not in the labor force. To be classified as unemployed, a person must be without a job, currently available to work, and actively looking for work in the previous four weeks. Thus, a person who does not have a job but who is not currently available to work or has not actively looked for work in the last four weeks is counted as out of the labor force. Employed: currently working for pay Unemployed: Out of work and actively looking for a job Out of the labor force: Out of paid work and not actively looking for a job Labor force: the number of employed plus the unemployed

PDF page 173: population was "in the labor force"; that is, people are either employed or without a job but looking for work. We can divide those in the labor force into the employed and the unemployed. Table 7.1 shows those values. The unemployment rate is not the percentage of the total adult population without jobs, but rather the percentage of adults who are in the labor force but who do not have jobs: Unemployed people × 100 Unemployment rate = Total labor force

PDF page 174: Total adult population over the age of 16 254.082 million In the labor force 159.716 million (62.9%) Employed 152.081 million Unemployed 7.635 million Out of the labor force 94.366 million (37.1%)

PDF page 174: Total adult population over the age of 16 254.082 million In the labor force 159.716 million (62.9%) Employed 152.081 million Unemployed 7.635 million Out of the labor force 94.366 million (37.1%)

PDF page 174: Total adult population over the age of 16 254.082 million In the labor force 159.716 million (62.9%) Employed 152.081 million Unemployed 7.635 million Out of the labor force 94.366 million (37.1%)

PDF page 174: In this example, we can calculate the unemployment rate as 7.635 million unemployed people divided by 159.716 million people in the labor force, which works out to a 4.8% rate of unemployment. The following Work It Out feature will walk you through the steps of this calculation.

PDF page 174: Total adult population over the age of 16 254.082 million In the labor force 159.716 million (62.9%) Employed 152.081 million Unemployed 7.635 million Out of the labor force 94.366 million (37.1%)

PDF page 175: 159.716 Percentage in the labor force = 254.082 = 0.6286 = 62.9% To determine the percentage out of the labor force: Step 1. Divide the number of people out the labor force (94.366 million) by the total adult (working-age) population (254.082 million). Step 2. Multiply by 100 to obtain the percentage. 94.366 Percentage in the labor force = 254.082 = 0.3714 = 37.1% To determine the unemployment rate: Step 1. Divide the number of unemployed people (7.635 million) by the total labor force (157 million). Step 2. Multiply by 100 to obtain the rate. 7.635 Unemployment rate = 159.716 = 0.0478 = 4.8%

PDF page 173: population was "in the labor force"; that is, people are either employed or without a job but looking for work. We can divide those in the labor force into the employed and the unemployed. Table 7.1 shows those values. The unemployment rate is not the percentage of the total adult population without jobs, but rather the percentage of adults who are in the labor force but who do not have jobs: Unemployed people × 100 Unemployment rate = Total labor force

PDF page 174: In this example, we can calculate the unemployment rate as 7.635 million unemployed people divided by 159.716 million people in the labor force, which works out to a 4.8% rate of unemployment. The following Work It Out feature will walk you through the steps of this calculation.

PDF page 175: Even with the “out of the labor force” category, there are still some people who are mislabeled in the categorization of employed, unemployed, or out of the labor force. There are some people who have only part time or temporary jobs, and they are looking for full time and permanent employment that are counted as employed, although they are not employed in the way they would like or need to be. Additionally, there are individuals who are underemployed. This includes those who are trained or skilled for one type or level of work but are working in a lower paying job or one that does not utilize their skills. For example, we would consider an individual with a college degree in finance who is working as a sales clerk underemployed. They are, however, also counted in the employed group. All of these individuals fall under the umbrella of the term “hidden unemployment.” Discouraged workers, those who have stopped looking for employment and, hence, are no longer counted in the unemployed also fall into this group

PDF page 175: Even with the “out of the labor force” category, there are still some people who are mislabeled in the categorization of employed, unemployed, or out of the labor force. There are some people who have only part time or temporary jobs, and they are looking for full time and permanent employment that are counted as employed, although they are not employed in the way they would like or need to be. Additionally, there are individuals who are underemployed. This includes those who are trained or skilled for one type or level of work but are working in a lower paying job or one that does not utilize their skills. For example, we would consider an individual with a college degree in finance who is working as a sales clerk underemployed. They are, however, also counted in the employed group. All of these individuals fall under the umbrella of the term “hidden unemployment.” Discouraged workers, those who have stopped looking for employment and, hence, are no longer counted in the unemployed also fall into this group

PDF page 175: Another important statistic is the labor force participation rate. This is the percentage of adults in an economy who are either employed or who are unemployed and looking for a job. Using the data in Figure 7.2 and Table 7.1, those included in this calculation would be the 159.716 million individuals in the labor force. We calculate the rate by taking the number of people in the labor force, that is, the number employed and the number unemployed, divided by the total adult population and multiplying by 100 to get the percentage. For the data from January 2017, the labor force participation rate is 62.9%. Historically, the civilian labor force participation rate in the United States climbed beginning in the 1960s as women increasingly entered the workforce, and it peaked at just over 67% in late 1999 to early 2000. Since then, the labor force participation rate has steadily declined, slowly to about 66% in 2008, early in the Great Recession, and then more rapidly during and after that recession, reaching its present level, where it has remained stable, near the end of 2013.