What is an Unemployment Rate?

Definition: Unemployment rate is percentage of the workforce that is not currently employed but is willing to work and actively seeking paid work.

What Does Unemployment Rate Mean?

What is the definition of unemployment rate? The unemployment rate formula is calculated by dividing the number of unemployed individuals in the workforce by the total labor force. This main category of unemployed people is typically broken down into four different categories based on how they affect the economic system: structural, frictional, cyclical, and long-term.

Structural unemployment describes a situation where there are too many workers with one set of skills and not enough jobs in the economy that need that set of skills.

Frictional unemployment describes the time workers spend in between jobs. This is a temporary loss of work that occurs when someone quits a job before finding another.

Cyclical unemployment happens when there are not enough jobs for everyone who wants work.

Long-term unemployment occurs when individuals looking for work can’t find a job within a single year.

Let’s look at an example.


One example: Jack was laid off from his job as an automotive assembler at his local automaker plant. The reason he was laid off was become costs were rising for from when the plant began redesigning a new, more efficient car model; however, Jack knows he will be reinstated immediately after the final design is approved. In his lay off period, Jack is able to work, but he is not actively seeking a job. He is still considered unemployed because he is waiting to be recalled.

Second Example: A census calculated the unemployment rate is 4.9% which is the number of people actively seek works that are unemployed over the total amount of people in the working-age population. Joanna is one of those who are unemployed. She is an interpretive dancer. She was working at a local theater, but she felt that she deserved more money than she was offered.

She’d heard about a popular group in New York and wished to start her career there. She moved to New York for the potential opportunity. After settling and going to countless auditions, she realizes that she’s been out of work for over a year. Her frictional unemployment changed to long-term unemployment once she had been searching for over a year.

Summary Definition

Define Unemployment Rates: Unemployment rate means the portion of the labor force that is currently without employment and looking for work.

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