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Monday, June 1, 2009

Wait a Sec - That's NOT How You Calculate the Unemployment Rate!

Here's an exceptionally hot topic right now: The Unemployment Rate.

Until recently, the only folks paying much attention to the UR were geeky Economists (like us). A year ago, even talking about the UR could really clear a room! But nowadays, if I'm at a party and I mention my occupation (Economist) and employer (Employment Department), I become the center of attention! Unfortunately that also means I have to clear up some misconceptions about what the UR really is.

So here's your true-or-false pop quiz for the day: For the purpose of calculating the unemployment rate, the "unemployed" people in society are only those folks receiving unemployment insurance (UI) benefits.

If you answered true... Sorry! That's not quite right! Here's the quick and dirty on how the UR is actually calculated:

- Employed people are the folks who have jobs.
- Unemployed people are those who don't have jobs but who are "actively looking" for work. That is, they are searching job listings, visiting employers, filling out applications, etc.
- Together, these two groups make up the Civilian Labor Force.
- Mathematically, the unemployment rate is the number of unemployed divided by the total labor force.

In a simple example:
If there were 90 people working,
and 10 people who are not working but looking for work,
then the labor force is 100 people,
and the unemployment rate is 10% (because 10/100 = 10%)!


Now I'd love to go on and on about the UR, but chances are that more than half of you stopped reading after the word "pop quiz", so I will leave it at that for now. But be forewarned: This topic will probably come up again!

1 comment:

Dave said...

Great explanation! Quick & easy - thanks!