Unemployment Rate

These days the most commonly used word amongst folks setting the fiscal policy and monetary policy is the unemployment rate. It has been quoted numerous times in the news channels and no wonder this indicator has taken a turn for the worse recently. So what exactly is unemployment rate? Bluntly speaking, it provides a snapshot in time of the number of persons out of the total working age population who are eligible to work, but cannot find work. 

You still with me? Let's break this down. 

The total population of the United States is 330 Million. See the graph below from FRED.


Now this can be further broken down as 
1) Civilian Non-institutional population (~260 Million) 
2) Civilian Institutional Population (~70 Million)

Civilian Institutional Population includes persons living in military installations, correctional and penal institutions, dormitories of schools and universities, religious institutions, hospitals and so forth. In order to calculate the unemployment rate, we consider only the Civilian Non-institutional population (~260 Million). Let's break this down further in to three distinct categories 

    1A) Young Population i.e. persons who are below 15 years old:                             ~49 Million 
    1B) Working age population i.e. persons who are between 15 and 64 years old:    ~170 Million 
    1C) Elderly population i.e. persons who are above 64 years old:                             ~41 Million 

The labor force participation rate is about 61 percent of the total Civilian Non-institutional population i.e. 61 percent of 260 Million which is ~159 Million. This indicates that while the working age population is 170 Million, the labor force participation rate is ~159 Million. So what happened to the remaining 11 Million?  These persons could have decided for various reasons to not actively look for work. They might have decided to drop off the labor force either because they have fallen off their ways, won a lottery or just decided that working is not for them. 

Out of the 159 Million persons, as of June 2020 the number of persons actively employed are ~142 Million, which leads to an unemployment rate of 11.1 percent. The graph below shows the unemployment rate since 2008 onwards.


For those of you who are numerically inclined, the following table gives the values for the past 6 months.

As you can see from above, the unemployment rate saw a shocking rise to ~15% in April and since then fallen to around 11 percent. Keep in mind, during the last recession in 2008-09 the unemployment was as high as 11 percent. Now do we see a V shaped recovery? Given the recent raise in COVID cases across the country and states rolling back some of the opening measures a "V" shaped recovery looks highly unlikely. 

So what happened in July 2020? At the time of writing this blog, July data has not yet been released. it is expected to be released on August 7th at 8:30am ET.

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