U-6 (Unemployment) Rate Definition

What is the U-6 (unemployment) rate?

The U-6 (unemployment) rate measures the percentage of the U.S. labor force that is unemployed, plus those who are underemployed, marginally attached to the workforce, and have given up looking for work. The U-6 rate is considered by many economists to be the most telling measure of the true state of the employment situation in the country.

Nevertheless, the most widely reported unemployment number is the U-3, often referred to simply as the unemployment report. The U3 only reveals the number of people who are unemployed and have looked for work in the last four weeks.

Both figures are released by the Bureau of Labor Statistics (BLS).

Understanding the U-6 (unemployment) rate

The official unemployment rate used by the US government and published by the Bureau of Labor Statistics (BLS) is the U-3 rate. This is the percentage of the total labor force that is unemployed and has actively looked for work in the past four weeks.

The part of the unemployed who have not looked for a job in the last four weeks is defined as “marginally attached” and is no longer counted as unemployed.

This marginally attached group includes the unemployed who have looked for a job without success in the last twelve months. It also includes people who have returned to school or who have become disabled, in which case they may or may not return to the labor market at some point.

Composition of the U-6 tariff

The U-6 rate, on the other hand, takes this marginally attached percentage of the labor force into account in its calculation of unemployment.

The U-6 rate also includes underemployed people in its parameters. These are people who want full-time jobs but have settled for part-time jobs because of economic conditions. While the U-3 rate counts this category of workers as employed, the U-6 counts this group as unemployed.

Finally, the U-6 rate includes the “discouraged”: those who want a job but have given up looking.

U-6 (unemployment) rate factors

Gallup, the data analytics firm, considers the U-6 rate to be “the true unemployment rate” and argues that the widely quoted U-3 rate does not accurately represent the reality of unemployment in America.

Gallup notes that an engineer or other skilled professional who takes a low-paying part-time job to survive would not be counted in the official unemployment rate, even if they earn only $20 a week.

Also, the U-3 rate does not include workers who are employed but whose hours of work have been reduced.

All of the above are called “underemployed” and are included in the U-6 rate.

The U-3 also omits those who are unemployed but have not looked for work in the past four weeks. It is the “discouraged” workers that the U-6 reflects.

U-6 tracking

The St. Louis Fed (FRED) tracks the U-6 rate over time on its website.

His chart, based on BLS figures, shows a surprising U-6 rate of 22.9% in April 2020, during the first nationwide shutdown of COVID-19. The official U-3 rate at that time was 14.7%. In January 2020, the U-6 rate was only 6.9%. The official U-3 rate was 3.5%.

Sample U-6 (unemployment) rate

To calculate the official unemployment rate, the U-3, the BLS divides the total number of unemployed by the total number of labor force participants, then multiplies that number by 100.

For example, the monthly rate report for June 2019 showed that the total number of unemployed people was 6.0 million and the civilian labor force was 163.0 million. The U-3 unemployment rate was 3.7% (seasonally adjusted).

In the same January 2022 report, the number of people marginally attached to the labor force stood at 1.5 million, while the total number of workers in part-time employment for economic reasons was 3.7 million. . The U-6 unemployment rate was 7.1% (seasonally adjusted).

When calculating the U-6 rate, the marginally attached group is added to both the numerator (total unemployed) and the denominator (total labor force). Also, part-time workers are added to the numerator only, since they have already been included in the labor force.

The U-6 rate is considerably higher than the U-3 figure and arguably better reflects the health of the American workforce at the time.

The COVID-19 effect

Since March 2020, the Bureau of Labor Statistics has added several questions to its household survey to measure the impact of the coronavirus pandemic on jobs.

Here is some of what he found in January 2022:

• 15.4% of employed Americans have telecommuted at least part of the time.
• 6 million people were unable to work because their employer closed or lost business due to the pandemic.
• 1.8 million have been unable to look for work due to the pandemic.

The essential

The U-3 unemployment rate is reported monthly and is carefully monitored and tracked as a key indicator of the health of the US economy.

The U-6 rate offers a broader understanding of the true health of the economy.

How many people are jostling for part-time jobs because they can’t get a full-time position? How many people have given up even trying to find a job? How many left the labor market, hoping to return when the situation improves?

The U-3 number does not include any of these people, but the U-6 rate does.