The Basic Factors of Unemployment Rate

A lot of us believe that when we see reports on the current unemployment rate of a country it speaks about the number of people that are out of jobs. We then conclude that business sectors cannot provide enough jobs for all workers. In order to be enlightened, it is important to understand the true concept of unemployment.

Take note that the economic concept of unemployment does not refer to everyone who does not have a job. There are certain requirements in order to fit the perfect description of an unemployed person. For example, we cannot tell a person who have been staying at home for months unemployed when he is not even looking for a job. Persons in mental institutions or private care cannot be described as unemployed because they are not active workers.

When measuring the unemployment rate, economists first identify the total number of the labor force. The labor refers to the employed and unemployed. An employed person is one that holds a permanent job whether on duty or on leave. So, these are people currently present at work or those absent but still connected with his employer due to vacation leaves, sick leaves, business trips and other reasons. An unemployed person refers to those who have lost their jobs through no fault of their own, is actively seeking for jobs in the last 4 weeks, and is physically capable and available for job anytime. The Department of Labor assesses the figures for both classes by getting payroll data from employers and by conducting surveys on 60,000 households. Add both figures and you get the total number of people in the labor force.

To arrive at the unemployment rate, the number of unemployed is divided over the number of the total labor force. Say for example the unemployed workers are 60, and the total number of the labor force is 600, then you have an unemployment rate of 10%. Two digit figures on unemployment rate reflect a not very healthy economy. In the United States, healthy economy is when you have the rate at 6% the most. Lower is better.