What is the U-6 Rate?
The U-6 rate is the unemployment rate that includes discouraged workers who have quit looking for a job as well as part-time workers who are seeking full-time employment. The U-6 rate is considered by many economists to be the most revealing measure of a country’s unemployment situation since it covers the percentage of the labor force that is unemployed, underemployed and discouraged.
Understanding the U-6 Rate
The official unemployment rate used by the U.S. government and recorded 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 has actively sought employment within the past four weeks. The portion of the unemployed that has not looked for a job in the past four weeks is no longer considered unemployed but is considered "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 returned to school or become disabled, in which case they may or may not return to the labor force.
In addition to the marginally attached category, the U-6 rate also includes the underemployed in the labor force in its metrics. The underemployed represent people who would prefer full-time jobs but have settled for part-time jobs due to economic conditions. While the U-3 rate considers this category of workers to be employed, the U-6 considers this group as unemployed.
Why the U-6 Rate Matters
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, the U-3, the BLS divides the total unemployed by the total labor force participants. For example, the June 2019 monthly rate report indicated that the total number of people that were unemployed was 5.975 million and the civilian labor force consisted of 259,037,000 people. The unemployment rate was, therefore, calculated to be 5.975 / 259.037 = 3.7%.
In the same June 2019 report, people that were marginally attached to the labor force was 1.571 million. The total number of workers with part-time jobs for economic reasons was 4.347 million. When calculating the U-6 rate, the marginally attached group is added to both the numerator (total unemployed) and denominator (total labor force). In addition, 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, in June 2019 was 7.2 percent. This is much higher than the 3.7 percent figure and is arguably a better reflection of the state of the economy at the time.