Documented Problem Solving: Calculating the Unemployment Rate

Students will:

• understand the difference between the labor force and the population;
• recall the definition of unemployed;
• identify the components of the labor force;
• determine the unemployment rate.

This activity is appropriate for Principles of Economics courses regardless of class size or mode of instruction. It can be used as an in class activity or as a homework assignment.

For this activity, a MC, T/F, or short answer question is needed. Below is an example of a short answer question that works well with documented problem solving.

Suppose an economy has a population of 40 million people. There are 5 million people who are unemployed, and 30 million people are employed. What is the unemployment rate?

Students are sometimes confused by the difference in the labor force and the population. In addition, they think that everyone in the population who is without a job is unemployed. The definition of "unemployed" is different in economics than how it is used in casual conversation.

In order to find the unemployment rate, I first reviewed the definition of unemployed. To be considered unemployed, a person must be actively looking for work. I also reviewed the definition for the labor force. It includes those who are employed and those who are unemployed. So, in this case, the number of people in the labor force is 35 million. I found the formula for the unemployment rate in my notes. It is the number of unemployed divided by the labor force times 100. I plugged 5 million into the formula for the number of unemployed and 35 million into the formula for the labor force. The unemployment rate is equal to 14.28 percent.

Angelo, T.A. and Cross, K.P. (1993). Classroom Assessment Techniques: A Handbook for College Teachers. San Francisco: Jossey-Bass.