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What Is It?

The unemployment rate is the percent of a country’s labor force that is jobless.

How Is It Calculated?

The unemployment rate is calculated by dividing the number of unemployed people by the total number of people in the labor force (all employed and unemployed people). The ratio is expressed as a percentage.

Unemployment Rate = Number of Unemployed ÷ Total Labor Force

Different countries, however, have a wide variety of metrics for classifying total labor force and what constitutes an unemployed person. The generally accepted definition of an unemployed person is someone over the age of 18 who was not working, was available for work, and had taken action to get work in the 30 days preceding the survey. 

What Does It Mean?

A country’s unemployment rate is a key metric used to understand the state of a county’s economy.

  • A high unemployment rate means that the economy is not able to generate enough jobs for people seeking work. Sustained high unemployment precipitates prolonged suffering for individuals and families, promotes social unrest, decreases productivity within the economy, decreases wages, decreases taxes paid to government entities, and transfers costs from businesses and individuals to the government in unemployment benefits and other costs.
  • A high unemployment rate, however, has the ability to attract foreign investment with an abundance of workers and depressed wages.
  • A low unemployment rate means that the economy is efficient in generating jobs for people seeking work. Sustained low unemployment promotes social stability, increases productivity, increases wages, and increases tax and other payments made to government entities.
  • A low unemployment rate, however, can mean increased costs to businesses, lower profits, and inflation, and they can act as a hindrance to foreign investment.