With adults sorted into groups (Who Is in the Labor Force), the unemployment rate is a percent: what share of the labor force is unemployed.
Key idea
$$\text{unemployment rate} = \dfrac{\text{unemployed}}{\text{labor force}} \times 100$$ $$\text{labor force participation rate} = \dfrac{\text{labor force}}{\text{adult population}} \times 100$$
Why it works
The unemployment rate asks: of the people who want to work, what share cannot find a job? So the denominator is the labor force, not all adults. The participation rate answers a different question: what share of adults are working or looking? Watching both together tells a fuller story. If unemployed people give up looking, they leave the labor force: both the top and the bottom of the unemployment fraction shrink, and the rate falls even though no one found a job.
Worked examples
Worked example: The rate, not the count
A country has 250 million adults: 152 million employed, 8 million unemployed, the rest not in the labor force. Find the unemployment rate and the participation rate.
- Labor force $= 152 + 8 = 160$ million.
- Unemployment rate $= \dfrac{8}{160} \times 100 = 5\%$.
- Participation rate $= \dfrac{160}{250} \times 100 = 64\%$.
- Dividing 8 by all 250 million adults would give 3.2%, which is wrong.
Answer: 5% unemployment; 64% participation
Worked example: Discouraged workers
There are 92 million employed and 8 million unemployed. Then 2 million of the unemployed stop looking. Find the new unemployment rate.
- Before: $\dfrac{8}{100} \times 100 = 8\%$.
- After: unemployed $= 6$ million; labor force $= 98$ million.
- $\dfrac{6}{98} \times 100 \approx 6.1\%$. The rate fell by almost 2 points, yet no one found work.
Answer: About 6.1%
Common mistake
Dividing by the whole adult population, and missing that discouraged workers leaving the labor force can lower the rate. Check: your denominator should be employed + unemployed. When the rate falls, ask whether employment rose or people stopped looking.
See it with real data: the U.S. unemployment rate and labor force participation rate on the Economic Data page.