Economics » Unemployment » How the Unemployment Rate is Defined and Computed

Key Concepts and Summary

Key Concepts and Summary

Unemployment imposes high costs. Unemployed individuals suffer from loss of income and from stress. An economy with high unemployment suffers an opportunity cost of unused resources. The adult population can be divided into those in the labor force and those out of the labor force. In turn, those in the labor force are divided into employed and unemployed. A person without a job must be willing and able to work and actively looking for work to be counted as unemployed; otherwise, a person without a job is counted as being out of the labor force.

The unemployment rate is defined as the number of unemployed persons divided by the number of persons in the labor force (not the overall adult population). The Current Population Survey (CPS) conducted by the United States Census Bureau measures the percentage of the labor force that is unemployed. The establishment payroll survey by the Bureau of Labor Statistics measures the net change in jobs created for the month.


discouraged workers

those who have stopped looking for employment due to the lack of suitable positions available

labor force participation rate

this is the percentage of adults in an economy who are either employed or who are unemployed and looking for a job

out of the labor force

those who are not working and not looking for work—whether they want employment or not; also termed “not in the labor force”


individuals who are employed in a job that is below their skills

unemployment rate

the percentage of adults who are in the labor force and thus seeking jobs, but who do not have jobs

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