Unemployment Rate

Two Main Labor Market Indicators: Calculating the Unemployment Rate and the Labor Force Participation Rate

This figure outlines the two main labor market indicators. This can be used to calculate the unemployment rate and the labor force participation rate.
Figure 4-2: Labor Market Categories in Thousands, October 2016 by FSCJ is licensed under CC-BY-4.0.

The labor force is defined as the sum of employed and unemployed persons:

Labor Force = Employed + Unemployed

Working-Age Civilian Noninstitutional Population is defined as follows: (1)

Working-Age Civilian Noninstitutional Population = Labor Force + Not in the Labor Force.

The unemployment rate is the percentage of the people in the labor force who are unemployed. It equals:

equation showing number of people unemployed divided by labor force times 100
The Unemployment Rate by FSCJ is licensed under CC-BY-4.0.

Let’s practice using the numbers (in millions) from Figure 4.2 (9) :

Unemployment rate = {7.8 ÷ (151.9 + 7.8)}x100 = 4.9%

Those counted in the numerator are people who are unemployed, but at the same time are actively seeking employment. Only the fact that the individual may be without work does not qualify the person to be classified as unemployed.

The labor force participation rate is the percentage of working-age civilian noninstitutional population who are members of the labor force. It equals:

equation showing labor force divided by working age population times 100
The Labor Force Participation Rate by FSCJ is licensed under CC-BY-4.0.

Let’s practice using the numbers (in millions) from Figure 4.2.

Labor force participation rate = (159.7 ÷ 254.3)x100 = 62.8%

Alternative Measures of Unemployment: People Not in the Labor Force and the Marginally Attached Workers

Even with the “not in the labor force” category, there are still some people that are mislabeled in the categorization of employed, unemployed, or out of the labor force. There are some people who only have part-time or temporary jobs and who are looking for full-time and permanent employment that are counted as employed, though 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, an individual with a college degree in finance who is working as a sales clerk would be considered underemployed. They are, however, also counted in the employed group. (9)

In addition to the employed and the unemployed, there is a third group of people who are placed in a special category called not in the labor force, or out of the labor force. For example, a stay-at-home mother, or father, who last week was occupied with normal household activities, but neither held a job nor looked for a job is considered not in the labor force. Broadly speaking, those who are not in the labor force include retired persons, students, those taking care of children or other family members, and others who are neither working nor seeking work. (9)

Since the mid-1990s, typically fewer than 1 in 10 people not in the labor force reported that they want a job. A series of questions is asked each month of persons not in the labor force to obtain information about their desire for work, the reasons why they had not looked for work in the last four weeks, their prior job search, and their availability for work. These questions form the basis for estimating the number of people who are not in the labor force, but who are marginally attached to the labor force. These are individuals without jobs who are not currently looking for work (and therefore are not counted as unemployed), but who nevertheless have demonstrated some degree of labor force attachment. Specifically, to be counted as marginally attached to the labor force, they must indicate that they currently want a job, have looked for work in the last 12 months (or since they last worked if they worked within the last 12 months), and are available for work.

Discouraged workers are a subset of the marginally attached. Discouraged workers report they are not currently looking for work for one of the following types of reasons:

  • They believe no job is available to them in their line of work or area;
  • They had previously been unable to find work;
  • They lack the necessary schooling, training, skills, or experience;
  • Employers think they are too young or too old; or
  • They face some other type of discrimination. (9)

Labor Market Categories: A Summary

The Current Population Survey excludes children and young teens under 16 years of age, people living in institutions (for example, a correctional institution or a residential nursing or mental health care facility), and those on active duty in the Armed Forces. Thus, if from total population we remove the above categories, we obtain working-age civilian population. The survey is designed so that each person age 16 and over (there is no upper age limit) is counted and classified in only one group.

Employed are:

  • All those who did any work for pay or profit during the survey reference week.
  • All those who did at least 15 hours of unpaid work in a business or farm operated by a family member with whom they live.
  • All those who were temporarily absent from their regular jobs because of illness, vacation, bad weather, labor dispute, or various personal reasons, whether or not they were paid for the time off. (11)

Unemployed are:

  • All those who did not have a job at all during the survey reference week, made at least one specific active effort to find a job during the prior four weeks, and were available for work (unless temporarily ill).
  • All those who were not working and were waiting to be called back to a job from which they had been laid off. (They need not be looking for work to be classified as unemployed.) (11)

The Bureau of Labor Statistics defines a person as unemployed if he or she is not working, but is looking for and available for work. The labor force is the total number of people working or unemployed. The unemployment rate is the percentage of the labor force that is unemployed. The labor force participation rate is the percentage of the working-age population that is part of the labor force. (13)

Table 1. Labor Market Indicators in Thousands 2014-2016

Fourth Quarter 2014 Fourth Quarter 2016 October 2016
Labor Force 156,316 157,432 159,712
Labor Force Participation Rate (%) 62.8 62.5 62.8
Working-age Civilian Non-institutional Population 248,911 251,891 254,321
Employed 147,400 149,523 151,925
Unemployed 8,915 7,909 7,787
Unemployed rate (%) 5.7 5 4.9
Not in Labor Force 92,596 94,459 94,609

The following are some categories that represent underutilization of labor:

  • A marginally attached worker is a person who does not have a job, is available and willing to work, has not made specific efforts to find a job within the previous four weeks, but has looked for work sometime in the recent past.
  • A discouraged worker is a marginally attached worker who has not made specific attempts to find a job within the previous four weeks because previous unsuccessful attempts were discouraging.
  • Full-time workers are those who usually work 35 hours or more a week.
  • Part-time workers are those who usually work less than 35 hours a week.
  • People who work part time for economic reasons (also known as involuntary part-time workers ) are people who work 1 to 34 hours per week, but who are looking for full-time work and cannot find it because of unfavorable business conditions. These workers are not considered strictly unemployed, but are certainly underemployed. (9)