What Is the Unemployment Rate?
The unemployment rate is the percentage of the labor force without a job. It is a lagging indicator, meaning that it generally rises or falls in the wake of changing economic conditions, rather than anticipating them. When the economy is in poor shape and jobs are scarce, the unemployment rate can be expected to rise. When the economy grows at a healthy rate and jobs are relatively plentiful, it can be expected to fall.
- The unemployment rate is the proportion of the labor force that is not currently employed but could be.
- There are six different ways the unemployment rate is calculated by the Bureau of Labor Statistics using different criteria.
- The most comprehensive statistic reported is called the U-6 rate, but the most widely used and cited is the U-3 rate.
- The U-3 unemployment rate for Dec. 2022 was 3.5%.
- U.S. unemployment data is released on the first Friday of every month.
Understanding the Unemployment Rate
The U.S. unemployment rate is released on the first Friday of every month (with a few exceptions) for the preceding month. The current and past editions of the report are available on the website of the Bureau of Labor Statistics (BLS). Users can generate and download tables showing any of the labor market measures named above for a specified date range.
In the U.S., the official and the most commonly cited national unemployment rate is the U-3, which the BLS releases as part of its monthly employment situation report. It defines unemployed people as those who are willing and available to work and who have actively sought work within the past four weeks.
According to the BLS, those with temporary, part-time, or full-time jobs are considered employed, as are those who perform at least 15 hours of unpaid work for a family business or farm. The unemployment rate is seasonally adjusted to account for predictable variations, such as extra hiring during the holidays. The BLS also provides the unadjusted rate.
The unemployment rate for December 2022 declined slightly from the previous month to 3.5%, the same level it had been in Feb. 2020 before the start of the COVID-19 pandemic.
U-3 vs. U-6 Unemployment
The U-3 is not the only metric available, and it measures unemployment fairly narrowly. The more comprehensive U-6 rate, often called the real unemployment rate, is an alternative measure of unemployment that includes groups such as discouraged workers who stopped looking for a new job and the underemployed who work part-time because they can't find full-time employment. The seasonally adjusted U-6 real unemployment rate for December 2022 was 6.5%, down from 6.7% in November 2022.
To calculate the U-3 unemployment rate, the number of unemployed people is divided by the number of people in the labor force, which consists of all employed and unemployed people. The ratio is expressed as a percentage. The December 2022 seasonally adjusted U-3 unemployment rate as reported by the BLS was 3.5%.
U-3=Labor ForceUnemployed×100Unemployment Rate (seasonally adjusted)
Many people who want to work but cannot (due to a disability, for example) or became discouraged after looking for work without success, are not considered unemployed under this definition; since they are not employed either, they are categorized as outside the labor force.
Critics see this approach as painting an unjustifiably rosy picture of the labor force. U-3 is also criticized for making no distinction between those in temporary, part-time, and full-time jobs, even in cases where part-time or temporary workers would rather work full-time but cannot due to labor market conditions.Unadjusted
How the Unemployment Rate Affects the Economy
Unemployment is one of the most closely-watched indicators for economic health, along with gross domestic product and the consumer price index. The unemployment rate has an inverse relationship with the stock market and inflation, two key metrics for the overall health of the economy.
A low unemployment rate tends to be associated with an increased average wage, due to the reduced labor supply. In some instances, this can result in inflation, as employers raise prices to account for increased labor costs. Low unemployment also tends to be accompanied by increased stock prices, because the workforce has more disposable income.
Alternative Measures of Unemployment
In response to concerns that the official rate does not fully convey the health of the labor market, the BLS publishes five alternative measures: U-1, U-2, U-4, U-5, and U-6. Though these are often referred to as unemployment rates (U-6, in particular, is often called the real unemployment rate), U-3 is technically the only official unemployment rate. The others are measures of "labor underutilization."
People who have been unemployed for 15 weeks or longer, expressed as a percentage of the labor force.U-1=Labor ForceUnemployed 15+ Weeks×100
People who lost their jobs, or whose temporary jobs ended, as a percentage of the labor force.U-2=Labor ForceJob Losers×100
Unemployed people, plus discouraged workers, as a percentage of the labor force (plus discouraged workers).U-4=Labor Force+Discouraged WorkersUnemployed+Discouraged Workers×100
Discouraged workers are those who are available to work and would like a job, but gave up actively looking for one. This category includes people who feel they lack the necessary qualifications or education, who believe there is no work available in their field, or who feel they are too young or old to find work.
Those who feel unable to find work due to discrimination also fall under this category. Note that the denominator—normally the labor force—is adjusted to include discouraged workers, who are not technically part of the labor force.
Unemployed people, plus those marginally attached to the labor force, as a percentage of the labor force (plus the marginally attached).U-5=Labor Force+Marginally AttachedUnemployed+Marginally Attached×100
People marginally attached to the labor force include discouraged workers and anyone else who would like a job and has looked for one in the past 12 months but actively gave up searching. As with U-4, the denominator is expanded to include the marginally attached, who are not technically part of the labor force.
Unemployed people, plus people who are marginally attached to the labor force, plus those who are employed part-time for economic reasons, as a percentage of the labor force (plus marginally attached).U-6=Labor Force+MAUnemployed+MA+PTER×100where:MA=marginally attachedPTER=part-time for economic reasons
This metric is the BLS's most comprehensive. In addition to the categories included in U-5, it accounts for people who have been forced to settle for part-time work even though they want to work full-time. This category is often referred to as underemployed, although that label arguably includes full-time workers who are overqualified for their jobs. The denominator for this ratio is the same as in U-5.Unemployment Rates (seasonally adjusted)
Collection of Unemployment Data
Official U.S. employment statistics are produced by the BLS, an agency within the Department of Labor (DOL). Every month the Census Bureau, part of the Department of Commerce (DOC), conducts the Current Population Survey (CPS) using a sample of approximately 60,000 households, or about 110,000 individuals.
The survey collects data on individuals in these households by race, ethnicity, age, veteran status, and gender (but only allowing for categories of men or women), all of which—along with geography—add nuance to the employment data. The sample is rotated so that 75% of the households remain constant from month to month and 50% from year to year. Interviews are conducted in person or by phone.
The survey excludes individuals under the age of 16 and those who are in the Armed Forces (hence references to the "civilian labor force"). People in correctional facilities, mental health care facilities, and similar institutions are also excluded. Interviewers ask a series of questions that determine employment status, but do not ask whether respondents are employed or unemployed. Nor do the interviewers themselves assign employment status; they record the answers for the BLS to analyze.
Interviewers also collect information on industries, occupations, average earnings, and union membership. For those who are jobless, interviewers also ask whether they quit or were discharged (fired or laid off).
Unemployment Rate and COVID-19
In response to pandemic-related closures or business cutbacks, unemployment in the United States achieved historic records. In May 2020, 49.8 million individuals reported they had been unable to work at some point in the prior four weeks because their employer closed or lost business due to the pandemic. The unemployment rate increased from 4.4% in March 2020 to 14.8% in April 2020, achieving levels not seen since the 1930s.
The impacts of COVID-19 were experienced across the nation, as every state in the United States experienced a higher unemployment rate than what was recorded during the Great Recession; however, unemployment rates disproportionally impacted different sectors:
- Financial Activities: The unemployment rate in May 2020 was 5.7%, while the unemployment rate in July 2021 had improved to 3.0%.
- Leisure and Hospitality: The unemployment rate in April 2020 was 39.3%, while the unemployment rate in July 2021 had improved to 9.0%.
- Wholesale and Retail: The unemployment rate in April 2020 was 17.1%, while the unemployment rate in July 2021 had improved to 6.0%.
What Is the Current U.S. Unemployment Rate?
As of December 2022, the U-3 unemployment rate in the United States was recorded at 3.5%, the same as the pre-pandemic unemployment rate.
What Is a Healthy Unemployment Rate?
Low unemployment is not considered healthy, as lower rates can be seen as inflationary due to pricing pressure on salaries; however, high unemployment is not considered healthy, as higher rates can be seen as a financial strain on consumer spending. In general, most experts deem unemployment between 3% and 5% to be ideal, though there is no single consensus on what constitutes healthy unemployment.
What Are the Other Measures of U.S. Unemployment?
American unemployment rates utilize five measures in addition to the headline H3 figures: U-1, U-2, U-4, U-5, and U-6. Each of these incrementally considers additional groups of individuals and labels them as unemployed (e.g., those "underemployed" or working part-time but seeking full employment, etc.) The U-6 number is sometimes referred to as the "real" unemployment rate since it is the most comprehensive.
What's the Difference Between U-3 and U-6 Unemployment Rates?
U-3 is the headline unemployment number that we see in the news. It looks at those out-of-work Americans who have been looking for a job within the past four weeks. The more comprehensive U-6 includes everyone in U-3 plus those with only temporary work and people who are considered marginally attached to the labor force. These include those who have stopped looking for a job, as well as part-time workers unable to work full-time for economic reasons.
How Is U.S. Unemployment Data Collected?
The U.S. Bureau of Labor Statistics, or BLS, surveys approximately 60,000 households in person or over the phone. The responses are later aggregated by race, ethnicity, age, veteran status, and gender, all of which—along with geography—add greater detail to the employment picture.
The Bottom Line
In assessing an economy's health, the nation's unemployment rate plays a major factor in setting monetary policy and making strategic economic decisions. Though there are various ways to calculate unemployment, the general public is most familiar with the U-3 rate. The calculation for this iteration of the unemployment rate is to divide the number of unemployed individuals by the total workforce.