Calculating the Unemployment Rate

Statistics Canada defines the unemployed as those who are without jobs and who are actively looking for and available for work. With this being said we should realize that the unemployment rate can be skewed due to different factors. Some of these factors to consider are: seasonal variations, industries predominantly occupied by males or females, the average age of a certain demographic, the underemployed and the number of discouraged workers.

Seasonal variations:
This factor can skew the unemployment rate in a positive direction and make it look as though the economy is growing. It can also have an opposite interpretation if the data was collected after the Christmas season and show the economy getting worse.

Industries predominantly occupied by males or females:
In 2008 jobs in the oil and transportation industries were affected by severe lay-offs. These industries, which were occupied mainly by males, showed an over statement of the unemployment rate. While at the same time industries occupied by females such as Heath care, Education, and Financial services, showed an increasing.

Age:
Age is a factor for the simple fact that if a certain demographic was highly populated by student for example, this would show a decrease in the unemployment rate. This is due to students going back to school and dropping out of the labour force.

The under employed and the discouraged worker.
These two factors can under state the unemployment rate. This can be seen when a worker, who has failed to find a job, becomes discouraged and gives up searching. This simultaneously decreases the number in the labour force and in the unemployed but still part of the working age population. With this action the unemployment rate would be understated. When these workers resume looking for work they re-join the labour force and the unemployed. This would overstate the unemployment rate. This can also be true for the under employed workers who are not utilizing all of their skills or are working less hours then what they want. Two other factors that overstate the unemployment are conditions that are not reported such as the black market and collecting E.I while working.

There are some differences between calculating unemployment in Canada and in the U.S. The first difference is that United States considers a person part of the labour force even if they will be starting a job in couple months. In Canada you must start a job within 30 days to be considered part of the labour force. Second difference is that in the United States you must be actively seeking work. This means that you must be handing out résumés and attending interviews. In Canada we are more passive. Because of this difference in definition we need to subtract 1% from the Canadian unemployment rate to compare with the United States.



Our macro economics text book describes unemployment as the number of people 15 and over who are not in gainfully employment but are actively seeking. Before calculating unemployment we need to know working population. From this we subtract those not in the labour force and then identify those who are unemployed. The labour force is defined as the number of people employed plus the number unemployed but seeking work. While those not in the labour force includes those who are institutionalised, those serving in the military, those who are living on aboriginal reserves or territory. The unemployed are people who have been laid off within 26 weeks but expect to go back to work. People who are starting a new job within 30 days and who are actively seeking work. From this information we can extrapolate the percentage of people unemployed.

Unemployment Rate = (Unemployed Workers / Total Labour Force) * 100


For example: in 2010 Canada had a population of 34,238,035 people. Of the total population, 18,525,100 people are in the labour force and 17,041,000 people are employed. What is the unemployment rate? First, find the number of unemployed by subtracting the number of employed (17,041,000) from the labour force (18,525,100). So, 18,525,100 - 17,041,000 = 1,484,100. Therefore, 1,484,100 people are unemployed. Now, to find the unemployment rate, plug the numbers into the formula: Unemployment Rate = (1,484,100/18,525,100)*100 = 8.01 percent.

http://www40.statcan.gc.ca/l01/cst01/labor07a-eng.htm