How is the unemployment rate calculated?

• A. Unemployed divided by working age population x 100
• B. Unemployed divided by labour force x 100
• C. Labour force divided by unemployed x 100
• D. Total population divided by unemployed x 100

Answer: (B)

Unemployment rate tells us what share of people who are in the labour market are without work. The standard way to measure this is to take the number of unemployed people and divide it by the labour force (the total of employed plus unemployed), then multiply by 100.

So, unemployed divided by labour force times 100 gives the correct rate. The labour force includes those who are working and those actively looking for work. This focuses on people who could be employed if jobs are available, not the entire population.

Using the working-age population would measure the portion of all people of working age who are unemployed, which isn’t the same as the part of the labour force without work. Using the total population would mix in people not in the labour market at all (like children). Inverting the ratio would mix up the relationship, giving a value that isn’t the unemployment rate. That’s why the correct approach is unemployed over labour force.