U3 vs. U6 Unemployment Rate: An Overview
U3, or the U-3 unemployment rate, is the most commonly reported rate of unemployment in the United States and represents the number of people actively seeking a job. The U-6 rate, or U6, includes discouraged, underemployed, and unemployed workers in the country.
U3 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.
Along with the economic growth rate and the inflation rate, the unemployment rate is one of the most widely reported and discussed economic indicators. It is regularly cited in the news because it provides a simple snapshot of the condition of the economy. Many assume that the unemployment rate is a straightforward measure of people who are out of work, but the reality is more complicated.
U3 Unemployment Rate
The official unemployment rate is known as 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 it gathers, 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—going higher when an economy experiences hardships, and going down when things look better. Regardless of what state the economy is in, some unemployment is always expected.
U3 is often criticized for being too simple, though. Many economists believe it doesn't take the whole picture into account. That's because the U3 rate only includes people who are actively seeking employment but excludes those who only work part-time but want full-time work. It also excludes anyone who has become discouraged after not being able to secure a job.
For example, a stonemason who wants to work but who has become discouraged by a lack of opportunity in the midst of a deep economic recession would not be included in U-3 unemployment. A marketing executive who is laid off at age 57 and stops scheduling new job interviews due to their experience of age discrimination would not be included in U-3 unemployment. A person who only works one six-hour shift per week because no full-time jobs are available in their area would not be included in U-3 unemployment.
U6 Unemployment Rate
Unlike the U-3 rate, the U-6 unemployment rate includes a whole swath of unemployed people—namely, everyone not listed in the U-3 rate. That means 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 for at least 12 months but left discouraged without being able to secure a job. 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.
According to BLS data, the average annual U-3 rate for 2018 was 3.9 percent, while the average annual U-6 rate was much higher, coming in at 7.7 percent.
Other Rates of Unemployment
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 affected workers
The term marginally affected workers refers to those who are available and willing to work, not discouraged from looking for work, but who have not looked for work in the prior four weeks for some other reason.
- The most commonly reported form of unemployment is the U-3 rate, which accounts for unemployed people who are actively seeking a job.
- The U-6 rate is often considered the true rate of employment, as it accounts for those who are unemployed, underemployed, and discouraged workers.