The unemployment rate is the percentage of citizens in the working age group who are willing to work but still can’t find any work. In the U.S., the Bureau of Labor Statistics (BLS) provides us with the latest unemployment rate data. It is computed monthly.
People of working age are part of the Labor force. This is irrespective of whether they are employed or unemployed. So, we can say –
Labor force = Number of (Unemployed + Employed)
Unemployment rate
But, not all citizens of the working-age groups can be a part of the Labor force. There could be some who are in the working age group but for some reason are not part of the Labor force anymore. This includes those who no longer are looking for work and the other group who have stepped down voluntarily, which can be due to education, health-related issues, personal reasons, etc.
So, the unemployment rate can be measured as –
Unemployment rate = Number of Unemployed / Labor force
Labor force participation rate
Up till now, we have the percentage of people who are unemployed with respect to the labor force. But, what if we want to calculate the percentage of the working-age population who are actually a part of the Labor force? This we have termed as the Labor force participation rate.
So, to measure the Labor force participation rate –
Labor force participation rate = Labor Force / Working-age Population
Both of these above i.e. Unemployment rate and Labor force participation rate are important indicators of how well the labor market performs. This helps the concerned authorities to design policies that push the working-age population to be a part of the labor force. A lesser unemployment rate and higher labor force participation rate are good for any economy.
Besides, during times of downturn, the concerned authorities can also gauge the severity of the economic situation and can support its labor force.
In conclusion, we have discussed how to measure the Unemployment rate here. Though there are other economic indicators, the employment rate and labor force participation rate are two indicators that do help us understand the performance of labor markets.