U-3 vs. U-6 Unemployment Rate: An Overview
The unemployment rate is the percentage of people in the labor force who are unemployed and available to work. It 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 United States, representing the number of unemployed people actively seeking a job. The U-6 rate covers discouraged, underemployed, and unemployed workers in the country.
U-3 gets the most media attention when released each month by the Bureau of Labor Statistics (BLS). But many economists view the U-6 rate as the more meaningful because it covers a larger percentage of people who are unemployed.
Key Takeaways
- The most commonly reported form of unemployment is the U-3 rate.
- It accounts for unemployed people who are actively seeking a job.
- The U-3 rate is watched every month as a barometer of economic conditions in the U.S.
- When U-3 rates are low, U-6 rates may be higher, reflecting a larger number of unemployed people.
- Some economists consider the U-6 rate the true rate of unemployment 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 and 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 employment status of the nation's working population.
The unemployment rate is a lagging rate. It changes months after an economy changes directions. It moves higher when an economy experiences hardships and moves lower when the economy strengthens.
For example, unemployment rates spiked dramatically in 2020 due to the wide-ranging economic impact of the COVID-19 pandemic. But the unemployment situation was very different two years later. Total nonfarm payroll employment rose by 678,000 in February 2022, and the unemployment rate edged down to 3.7%.
The U-3 unemployment rate is one of the most widely reported and discussed economic indicators along with economic growth (GDP) and inflation. It is regularly cited in the news because it provides a snapshot of the condition of the economy.
Criticism of U-3
U-3 is often criticized for being too simple. Many economists believe it fails to take the whole picture into account because it includes only people who are actively seeking employment. It actually excludes individuals who work part-time but want full-time work and discouraged workers. The latter are unemployed individuals who are able to work but haven't looked for a job for the last four weeks.
Here 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 was laid off at age 57 and stopped scheduling new job interviews because they repeatedly encountered 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 the U-6 rate, not the U-3 rate, to be the most complete measureof the real unemployment situation in the U.S.
U-6 Unemployment Rate
Unlike the U-3 rate, the U-6 unemployment rate includes a whole swath of unemployed people. It is seen by many as more in line with what it means to be unemployed.
This rate accounts for anyone who:
- Though seeking employment within the previous 12 months has been unable to secure a job and has not searched for work in the past four weeks
- Has gone back to school
- Has become disabled
- Is 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 being felt in September 2020, the U-3 unemployment rate was 7.9%. The U-6 rate was 12.8%.
By February 2022, both rates had improved greatly; the U-3 rate dropped to 3.8% while the U-6 unemployment rate dropped to 7.2%.
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—the discouraged, underemployed, and unemployed. |
| 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. |
Other Employment Rate Categories
Unemployment is divided into six different categories that include the U-3 and U-6 rates. The others are:
- U-1: The percentage of people unemployed for 15 weeks or more
- U-2: The percentage of people who lost their jobs and anyone who finished a temporary job
- U-4: The total number of unemployed people, plus discouraged workers
- U-5: The total number of unemployed people, discouraged workers, and other marginally attached workers
Marginally attached workers are discouraged workers and 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?
The Bureau of Labor Statistics formula for calculating U-6 is: ( (Total Unemployed + Marginally Attached to the Labor Force + People at Work Part Time for Economic Reasons) ÷ (Labor Force + Marginally Attached to the Labor Force) ) x 100.
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 it accounts for different kinds of underemployed and unemployed workers that the U-3 does not consider.
How Is the U-3 Unemployment Rate Calculated?
The unemployment rate inthe United Statesis obtained bydividing 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 official U-3 concept of unemployment has been reviewed and considered valid since the beginning of the Current Population Survey in 1940. The U.S. began tracking U-3 in the 1950s.
The Bottom Line
The U.S. government tracks various rates of unemployment, labeled U-1 through U-6. The official unemployment rate is U-3, which covers the percentage of people in the labor force who are unemployed and looking for a job.
Proponents of U-6, which represents the unemployed, under-employed, and discouraged job seekers, believe that it presents a clearer view of the true state of unemployment in the country.
