U-6 Rate

DEFINITION of 'U-6 Rate'

The unemployment rate that includes discouraged workers who have quit looking for a job and part-time workers looking for full-time employment. The U-6 rate is considered by many economists to be the most revealing factor of a country’s unemployment situation since it covers the percentage of the labor force that is unemployed, underemployed, and discouraged.

BREAKING DOWN 'U-6 Rate'

The official unemployment rate used by the US government and conducted by the Bureau of Labor Statistics (BLS) is called the U-3 rate. This is the percentage of the labor force that is unemployed and have actively looked for a job within the past four weeks. A portion of the unemployed that haven’t looked for a job in the past four weeks will not be considered as unemployed anymore, but will instead be regarded as "marginally attached."

The U-6 rate, on the other hand, factors in this marginally attached percentage of the labor force in its unemployment calculation. The marginally-attached group includes discouraged job seekers who have given up looking for work. This group includes workers who have unsuccessfully looked for work sometime in the past twelve months. Marginally-attached workers also include people who have gone back to school or become disabled, in which case they may or may not return to the labor force.

In addition to the marginally-attached class, the U6 rate also includes the underemployed of the labor force as part of its metrics. The underemployed represent people who would prefer full-time jobs but have settled for part-time jobs due to conditions of the economy. While the U-3 rate considers this category of workers to be employed, the U-6 regards the group as unemployed. For this reason, the U-6 rate is considered to be a better depiction of the economy as it consists of people who would like full-time jobs but can’t find any.

Both the U-3 rate and U-6 rate are published by the BLS in the monthly job report which is used by market watchers to gauge the health of the economy. To calculate the official unemployment rate, U-3, the BLS divides the total unemployed by the total labor force participants. For example, the December 2016 monthly rate report indicated that the total number of people that were unemployed was 7.53 million and the civilian labor force consisted of 159.64 people. The unemployment rate was therefore, calculated to be 7.53 ÷ 159.64 = 4.7%.

In the same December 2016 report, people that were marginally attached to the labor force was 1.68 million. The total of workers with part-time jobs for economic reasons was 5.6 million. When calculating the U-6 rate, the marginally attached group is added to both the numerator (total unemployed) and denominator (total labor force). Also, part time workers are added to the numerator only, since they have already been included as part of the labor force. The real unemployment rate, U-6, was (7.53 + 1.68 + 5.6) ÷ (159.64 + 1.68) = 9.2% in December 2016.