The unemployment rate represents the share of the labour force that is jobless, expressed as a percentage. This data will generally rise or fall in the wake of changing economic conditions. When the economy is in good health, businesses are doing well and seek to hire more individuals to meet the demands of the consumers in the market. This results in lower unemployment rates. However, if the economy was in bad condition, businesses would be restricting employment and more people are left without jobs.



An individual is classified as employed when they are working a minimum of 1 hour of paid work a week.



An individual is classified as unemployed if they are able to work and are actively searching for employment but is unable to find work.


Labour Force

The labour force comprises of both employed and unemployed individuals.


Labour Force = Employed + Unemployed


Retired workers and full-time students are also not included in the labour force.


Labour Force Participation Rate

The adult population refers to everyone in the economy who is above the age of 15 years which is considered the legal age to work.


Labor Force Participation Rate = Labour Force / Adult Population


Unemployment Rate

The unemployment rate is a percentage that represents individuals in the economy who are currently unemployed but are actively seeking work.


Unemployment Rate = (Unemployed / Labour Force ) x 100


Reasons why people are unemployed


Frictional Unemployment:

This form of unemployment refers to the period of time in which an individual is unemployed between jobs (transitioning from one job to another)


Structural Unemployment:
Technological advances are mostly to blame for this type of unemployment. This type of employment is caused by a lack of demand for a worker’s specific type of labour. Such as cashiers at local supermarkets that have been replaced by self-service checkouts.


Cyclical unemployment:

This is unemployment due to a recession. When consumer spending reduces dramatically and businesses lay off workers who end up having less income and result in buying even less goods and services that will lead to more job losses.


Seasonal Unemployment:

Many people have jobs in Ski resorts that are in demand during the winter months of course. Other jobs include being a pretend Santa during December! That


Long-Term Unemployment:

When people are unable to find work in 6 months, they consider dropping out of the labour force. They are discouraged workers who give up looking for work.



Although some individuals are employed, they might not be getting enough working hours (they are not working to their full capacity or skill level). Someone may be hired to work for full time hours, but were suddenly forced to work part time hours because they are not needed. This type of unemployment is rarely reflected in statistics because they individual is technically still employed (working more than one hour). Therefore, there may be more people employed in the economy it does not mean everyone is getting decent hours.



Natural Rate of Unemployment

a n economy is only considered to be at full employment when there is only frictional and structural unemployment. This rate differs between countries, in Australia full employment is usually 5%.


Goal of unemployment

Although the goal of the economy is to minimise the number of unemployed people, 0% unemployment rate is not possible if there are going to be people who are frictionally unemployed and structurally unemployed. The main goal is to only have cyclical unemployment which can be achieved by keeping the economy stable and growing. More growth means more jobs.


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