Principles of Macroeconomics / Unit 5 MAC 0406 worked example, 60 to 90 seconds
Computing the Rates
The idea
Given a population table, work in a fixed order. First add the employed and the unemployed to get the labor force. Second, divide the unemployed by that labor force and multiply by one hundred for the unemployment rate. Third, divide the labor force by the civilian noninstitutional population and multiply by one hundred for the participation rate. The two rates have different denominators, and writing each denominator down before dividing prevents the usual mistake.
In practice
Worked example: a country has two hundred and fifty million people sixteen and over. One hundred and fifty million are employed and ten million are unemployed. The labor force is one hundred and sixty million. The unemployment rate is ten over one hundred and sixty, which is six point two five percent. The participation rate is one hundred and sixty over two hundred and fifty, which is sixty-four percent.
Where people slip
Notice that ninety million people are in neither rate's numerator. They are out of the labor force, and they lower the participation rate without appearing in the unemployment rate at all.
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