What this lesson teaches
I can define employment, unemployment and full employment.
Syllabus K343, 4.6.1. Definitions of employment, unemployment and full employment
I can explain how unemployment is measured and calculate the unemployment rate.
Syllabus K343, 4.6.2. Measurement of unemployment: how unemployment is measured (labour force survey); formula for the unemployment rate
Make a guess
A full-time university student has no job and is not looking for one. Is she counted as unemployed?
- Yes, but only if she is over 18.
- Yes. Anyone of working age without a job is unemployed.
- No. She is outside the labour force.
Show the answer
No. She is outside the labour force.
Unemployed means willing, able and actively looking for work. She is not looking, so she is neither employed nor unemployed.
The unemployment rate is the number unemployed as a percentage of the labour force.
Employment means having paid work. Unemployment means being willing and able to work, and actively looking for a job, but not having one. People who are not looking for work, such as full-time students or retirees, are not counted as unemployed.
The labour force is everyone who is employed plus everyone who is unemployed. Full employment does not mean zero unemployment. It means a low rate, where the only unemployment is people briefly between jobs.
Unemployment is measured with a labour force survey. Officials ask a sample of households whether each adult worked, looked for work, and was available to start. The answers are used to estimate the totals for the whole country.
Unemployment rate = number unemployed / labour force x 100.
- Unemployed
- Willing and able to work, actively seeking work, but without a job.
- Labour force
- Employed + unemployed.
- Unemployment rate
- Unemployed / labour force x 100.
- Labour force survey
- Household survey used to measure unemployment.
Worked example: Calculating the unemployment rate
Suppose a country has 2.4 million people employed and 60,000 unemployed.
- Labour force = 2,400,000 + 60,000 = 2,460,000.
- Unemployment rate = 60,000 / 2,460,000 x 100 = about 2.4%.
- Note: divide by the labour force, not the whole population.
- Children, full-time students and retirees not looking for work are outside the labour force.
Try it step by step
Problem 1
A country has 2.4 million people employed and 60,000 unemployed.
Show the working
- Labour force: Labour force = employed + unemployed = 2,400,000 + 60,000 = 2,460,000
- Unemployment rate: Unemployment rate = 60,000 / 2,460,000 x 100 = 2.4% (to 1 decimal place)
Problem 2
A country has 3.8 million people employed and 200,000 unemployed. Another 1.2 million people are students or retired and not looking for work.
Show the working
- Labour force: Labour force = 3,800,000 + 200,000 = 4,000,000. The 1.2 million who are not looking for work are left out.
- Unemployment rate: Unemployment rate = 200,000 / 4,000,000 x 100 = 5%
Problem 3
A country has 2.3 million people employed and 200,000 unemployed. Another 600,000 children and 400,000 retirees are outside the labour force. Give the labour force in millions.
Show the working
- Labour force: Labour force = 2.3 million + 0.2 million = 2.5 million. Children and retirees are not counted.
- Unemployment rate: Unemployment rate = 200,000 / 2,500,000 x 100 = 8%
Watch out for this
A university student without a job is unemployed.
Only people actively looking for and available for work are unemployed. A full-time student who is not looking for work is outside the labour force.
Check your understanding
After a long search, many discouraged job seekers give up looking for work. What happens to the measured unemployment rate?
- It stays the same, as nobody found a job
- It falls, as they leave the labour force
- It rises, as more people are without a job
Show the answer
It falls, as they leave the labour force
Right. People not looking for work are no longer counted as unemployed or in the labour force, so the rate falls.
Check your understanding
A country's labour force is 2.5 million, of whom 75,000 are unemployed. What is the unemployment rate?
- 0.03%
- 33%
- 3%
- 3.1%
Show the answer
3%
Right. 75,000 / 2,500,000 x 100 = 3%.
Check your understanding
Which person is counted as unemployed?
- A parent at home who is not looking for a job
- A retiree who does not want a job
- A full-time student who is not looking for work
- A graduate with no job who is applying for work
Show the answer
A graduate with no job who is applying for work
Right. She is without work, able to work and actively looking for it.