U-3 vs. U-6 Unemployment Rate: What's the Difference?

U-3 vs. U-6 Unemployment Rate: An Overview

The unemployment rate is the percentage of people who are unemployed and available to work. It is expressed as a percentage of unemployed people in the labor force and is expressed using different rates, including the U-3 and U-6 unemployment rates.

The U-3 unemployment rate is the most commonly reported rate in the U.S., representing the number of unemployed people actively seeking a job. The U-6 rate includes discouraged, underemployed, and unemployed workers in the country.

U-3 is the rate of unemployment released each month by the Bureau of Labor Statistics (BLS), but many economists view the U-6 rate as the more meaningful rate because it covers a larger percentage of people who are unemployed.

U-3 Unemployment Rate

The official unemployment rate is known as the U-3 rate or simply U3. It measures the number of people who are jobless but actively seeking employment. The rate is measured by the BLS, which contacts 60,000 randomly selected households across the country and records the employment status of each person 16 years old or older.

The information gathered by the agency through surveys and social insurance statistics, which reflects the number of people who are drawing unemployment benefits, is published each month, giving a picture of the health of the nation's jobs data.

This rate changes months after an economy changes directions. It goes higher when an economy experiences hardships and goes down when things look better. For example, unemployment rates spiked dramatically in 2020 due to the wide-ranging economic impact of the COVID-19 pandemic. But the unemployment situation became very different two years later. Total nonfarm payroll employment rose by 678,000 in February 2022, and the unemployment rate edged down to 3.8%.

Criticism of U-3

U-3 is often criticized for being too simple. Many economists believe it doesn't take the whole picture into account because U3 only includes people who are actively seeking employment. It actually excludes individuals who only work part-time but want full-time work and discouraged workers. These are unemployed individuals who are able to work but haven't looked for a job for the last four weeks.

The following are a few examples of individuals who wouldn't be included in the U-3 rate:

• A stonemason who wants to work but became discouraged by a lack of opportunity in the midst of a deep economic recession
• A marketing executive who is laid off at age 57 and stops scheduling new job interviews due to their experience of age discrimination
• A person who only works one six-hour shift per week because no full-time jobs are available in their area

U-6 Unemployment Rate

Unlike the U-3 rate, the U-6 unemployment rate includes a whole swath of unemployed people and the U-6 rate is much truer to a natural, non-technical understanding of what it means to be unemployed.

This rate accounts for anyone who has been seeking employment within the previous 12 months but has been unable to secure a job and has not searched for work in the past four weeks. It also includes anyone who has gone back to school, become disabled, and people who are underemployed or working part-time hours.

By capturing everyone who exists on the margins of the labor market, the U-6 rate provides a broad picture of the underutilization of labor in the country. In this sense, the U-6 rate may be considered the true unemployment rate.

For example, with the effects of the pandemic still being felt in September 2020, the U-3 unemployment rate was 7.9%. The U-6 rate was 12.8%. In February 2022, the U-6 unemployment rate dropped to 7.6%, which was considerably higher than the U-3 rate (3.8%) in the same month.

Special Considerations

Unemployment is divided into six different categories including the U-3 and U-6 rates. The others include:

• U1: The percentage of people unemployed for 15 weeks or more
• U2: The percentage of people who lost their jobs and anyone who finished a temporary job
• U4: The total number of unemployed people, plus discouraged workers
• U5: The total number of unemployed people, discouraged workers, and other marginally attached workers

The term marginally attached workers includes discouraged workers and refer to those who are available and willing to work, but who have not looked for work in the prior four weeks for any reason. However, they have looked for work at some point in the previous 12 months.