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.
- The most commonly reported form of unemployment is the U-3 rate.
- It only accounts for unemployed people who are actively seeking a job.
- The U-3 rate is watched every month as it is considered a barometer of economic conditions in the United States.
- When U-3 rates are low, U-6 rates may be higher.
- Economists consider the U-6 rate as the true rate of employment because it accounts for unemployed, underemployed, and discouraged workers.
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%.
The unemployment rate is one of the most widely reported and discussed economic indicators along with economic growth and inflation. It is regularly cited in the news because it provides a simple snapshot of the condition of the economy.
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
Many economists consider U6 to be the most illustrative measure of the real employment situation in the United States—not the U-3 rate.
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.
|Differences Between U-3 and U-6 Unemployment Rates|
|U-3 Rate||U-6 Rate|
|U-3 is the most commonly reported rate of unemployment in the U.S.||U-6 includes everyone not accounted for in the U-3 rate—discouraged, underemployed, and unemployed workers in the country.|
|It measures the number of people who are jobless but actively seeking employment.||Because U-6 includes a wider group of people, its rate is higher than U-3.|
|Critics maintain that U-3 doesn’t tell the whole story as it excludes part-time workers who want full-time work, and anyone who has given up looking for a job.||Proponents of U-6 believe that it is the true unemployment rate.|
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.
How Do You Calculate the U-6 Unemployment Rate?
There are three steps to calculating the U-6 unemployment rate according to the U.S. Department of Labor Statistics. First, add the number of officially unemployed plus marginally attached workers plus those who are employed part-time. The number you get adding those three items up equals the number of un- and under-employed workers. Next, add the number of individuals in the labor force to the number of marginally attached workers. Last, divide the total number of un- and under-employed by the total labor force, including marginally attached. This figure equals the U-6 unemployment rate.
Why Should the U-6 Unemployment Rate Be Used?
Many economists feel that the U-6 unemployment rate should be used because it provides a fuller picture of employment in America. That's because they say it accounts for many kinds of under- and unemployed workers that the U-3 does not consider.
How Is the U-3 Unemployment Rate Calculated?
The unemployment rate in the United States is obtained by dividing the number of unemployed people by the number of people in the labor force and multiplying that figure by 100.
When Did U-3 Become the Official Unemployment Rate?
The U.S. government began tracking the standard unemployment rate (U-3) in the 1950s.
U.S. Bureau of Labor Statistics. “Alternative Measures of Labor Underutilization.”
U.S. Bureau of Labor Statistics. "Nonfarm payroll employment rose by 678,000 in February 2022."
FRED Economic Data St. Louis Fed. "Unemployment Rate."
U.S. Bureau of Labor Statistics. "Civilian unemployment rate."
FRED Economic Data St. Louis Fed. "Total Unemployed, Plus All Persons Marginally Attached to the Labor Force, Plus Total Employed Part Time for Economic Reasons, as a Percent of the Civilian Labor Force Plus All Persons Marginally Attached to the Labor Force (U-6)."
U.S. Bureau of Labor Statistics. “Table A-15. Alternative Measures of Labor Underutilization.”
U.S. Bureau of Labor Statistics. "Alternative Measures of Labor Underutilization for States, Third Quarter of 2019 through Second Quarter of 2020 Averages," Fourth Paragraph.
U.S. Bureau of Labor Statistics. "Employment Situation Summary Table A. Household data, seasonally adjusted."
The Street. "How to Calculate the Unemployment Rate."
Debt.org. "U.S. Unemployment."
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