UNEMPLOYMENT RATE AND LABOUR PARTICIPATION RATE

If you are a regular newsreader, you would have come across multiple news headings stating the unemployment rate?

But, how is this unemployment rate computed? Is the unemployment rate a wild guess?

We will decipher this and other unemployment computations in this post. So, stick around and read carefully.

What Is the Unemployment rate?

Last time, we defined unemployment as a situation where people are actively looking for a job but can't find any

The number of unemployed people can be expressed as a percentage of the labour force to form the unemployment rate.

In simple words, the unemployment rate is the percentage of people who are in the labour force but lack jobs.

To get a clearer understanding of the above definition, we need to define three terms:

1. Employed: A person is considered employed if he is currently employed for pay

2. Unemployed: A person is unemployed if he is without a job and actively looking for one.

3. Out of labour force: An individual who is not in the above two categories is considered to be out of the labour force.

More specifically, an individual is said to be out of the labour force if he is out of work and is not actively looking for a job or he is not available for employment.

Example of such individuals is full-time students and retirees.

Since these individuals are out of the labour force, they are not part of the labour force.

Therefore, we can define the labour force as the sum of the employed and unemployed.

Having defined this key concept, Now let's turn our attention to calculating the unemployment rate.

The unemployment rate, as you will know by now, is the percentage of the labour force who are unemployed.

Mathematically, it is represented as:

$U.R=\frac{N.E}{L.F}\times100$

Where U.R is the unemployment rate

            N.E is the Number of unemployed people and

            L.F is the labour force.

Example

Calculate the unemployment rate if 4.3 million people are unemployed in an economy with a labour force of 50 million.

Solution:

$U.E=\frac{4.3}{50}$

$U.E=8.6\%$

Thus, the unemployment rate is 8.6%

In addition to the unemployment rate, we can also calculate the labour force participation rate.

The labour force participation rate is simply the number of people in the labour force expressed as a percentage of the actual adult population of an economy.

The labour force participation rate measures the percentage of the adult population who are in the labour force.

To emphasize, the labour force only include individual who are either employed or unemployed.

Labour forces do not includes those who are voluntarily unemployed or people that have chosen not to work, and, therefore, remain unemployed

The labour participation rate can be calculated as the total labour force divided by the total adult population.

That is,

$L.F.P.R=\frac{L.F}{A.P}$

Where L.F.P.R is labour force participation rate

L.F is the population of the labour force 

A. P is the adult population

Example

In an economy with an adult population of 56 million people, it was observed that 40 million people are employed while 6 million people were unemployed. Calculate the labour force participation rate and the unemployment rate

Solution:

First, let's work out the labour force participation rate.

The Labour force is the sum of the employed and unemployed. Hence, the labour force is 46 million.

$L.F.P.R=\frac{46}{56}\times100$

$L.F.P.R=82.1\%$

Now to the unemployment rate

$U.E=\frac{6}{46}$

$U.E=13\%$

Therefore, the labour force participation rate and unemployment rates are $82.1\%$ and $13\%$  respectively 

CONCLUSION

Both the unemployment rate and labour force participation rate are very important statistics for knowing the employment(or unemployment) situation in a country.

While the unemployment rate tells us the fraction of the labour force unemployed, the labour participation force rate gives us an idea of the fraction of the adult population in the labour market.

However, in some cases, the official unemployment rate does not always reflect the actual unemployment. We will tell you why in our next post.

Meanwhile, if you have got questions relating to this, do well to ask our telegram community

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