The unemployment rate has skyrocketed across the U.S. during 2020. Understanding how the unemployment rate is calculated can provide people with a better idea of what it means for the general economic situation. The unemployment rate is calculated with a formula that divides the number of unemployed people in the U.S. by the total number of available workers in the labor force. However, a specific definition of unemployed from the U.S. Bureau of Labor Statistics is used to calculate the percentage.
To be counted as an unemployed person, you must have been available to work full-time in the past four weeks and be older than age 16. You must also have actively searched for a job during that time. People who have given up looking for work are not counted as unemployed even if they do not have jobs. There is an exception for people who were laid off and are waiting to be called back to their jobs, however. If you have been laid off or have become unemployed through no fault of your own, you may be entitled to receive unemployment insurance benefits. The attorneys at Swartz Swidler can review your situation and help you to understand your rights to receive benefits.
Understanding the unemployment rate
In December of each year, the U.S. releases the country’s unemployment rate for the previous year. This provides a broad view of what the rate of unemployment was in the preceding 12 months. At the end of the year, the unemployment rate has been greater than 10% two times. During the Great Depression, the unemployment rate ranged from 14% to 24.8%. The only other time when the unemployment rate at the end of the year was above 10% occurred in 1982 when it reached 10.8%.
In June 2020, statistics showed that the unemployment rate was 11.1%. Because of the COVID-19 pandemic, the Federal Reserve states that it could be as high as 30% by December 2020.
How is the unemployment rate calculated?
The standard rate of unemployment is calculated by dividing the number of unemployed people by the available number of workers at any point in time. by contrast, the real rate of unemployment includes part-time workers who would prefer to work full-time. Many people believe that the real unemployment rate truly shows the rate of unemployment since it counts all people who would accept full-time work if a job was offered to them. Calculating the real unemployment rate is an effective method to measure the real degree of unemployment in the labor force.
The U.S. Bureau of Labor Statistics calculates several different unemployment rates, including the real unemployment rate. This rate includes discouraged and marginally attached workers.
Unemployed people are divided into three categories. The long-term unemployed are people who have been without work for 27 or more weeks and have been searching for jobs for at least four or more weeks. Marginally attached workers include people who have searched for work during the past year but have not done so during the past four weeks. Discouraged workers are people who have searched for work during the past year but have not done so in the past four weeks. This means that they are no longer counted as being among the unemployed. Discouraged still would like to find full-time employment but feel that they do not have the right skills, are too old, or will face discrimination.
The unemployment rate is also used to calculate the misery index. The misery index combines the rate of inflation and the rate of unemployment.
What factors affect the unemployment rate?
Since the Great Depression, the unemployment rate has continued to improve. The government has learned more about how to reduce unemployment. According to research, job programs are the most cost-effective solution to the problem of unemployment.
Job programs are more effective in reducing unemployment than tax cuts. The economy can also be boosted by extending unemployment benefits. Unemployed people are much likelier to spend the money that they receive on their daily needs so that each dollar goes back into the economy and stimulates growth.
Labor force participation rate and the rate of unemployment
The labor force participation rate is calculated differently than the rate of unemployment. To find the labor force participation rate, the number of people who are employed is divided by the population.
The natural unemployment rate consists of three parts, including frictional unemployment, structural unemployment, and classical unemployment. Frictional unemployment occurs during voluntary job turnover when people quite jobs that they do not like to find better positions. Structural unemployment happens when a person’s skills do not match the available jobs. This can lead to long-term unemployment. Classical unemployment results from unions, minimum wage laws, and price and wage controls.
The media primarily discusses cyclical unemployment. This type of unemployment dramatically increases during the business cycle’s contraction phase. By the time that cyclical unemployment increases, a recession has already begun. This is because cyclical unemployment is a lagging indicator of a recession. Typically, businesses wait until they are certain that demand will not return before they lay off their employees.
Step-by-step process for calculating the unemployment rate
To calculate the unemployment rate, you need to know the number of people in the labor force. This equals the total of unemployed and employed people. You can then divide the number of unemployed people by the labor force to determine the rate of unemployment.
Start by dividing the total number of unemployed people by the total of non-working and working people. For example, if there are 50 million employed Americans and six million unemployed people, divide six by 50 to get a decimal of 0.12.
Next, multiply the decimal by 100 to arrive at the rate of unemployment. To do this, you will simply move the decimal two places to the left so that 0.12 becomes 12%.
To calculate the rate of employment, subtract from 100. In this case, subtract 12 from 100 to get 88, which means that 88% of Americans in this example are employed.
Calculating the rate of unemployment gives you a snapshot of how the U.S. labor market is currently performing. As the economy continues to struggle, a greater number of Americans are finding themselves unemployed. Unemployment insurance benefits can provide a safety net for people who have lost their jobs through no fault of their own. For help, talk to the attorneys at Swartz Swidler by calling us at 856.685.7420 or by filling out our online contact form.