What Is the U-6 (Unemployment) Rate?

The U-6 rate, often referred to as the "true" unemployment rate, offers a comprehensive view of a nation's employment landscape. Unlike the widely-cited U-3 rate, which only accounts for individuals actively seeking employment in the last four weeks, the U-6 encompasses a broader spectrum of labor market dynamics. In addition to those currently jobless and actively looking for work, the U-6 encompasses underemployed individuals, "discouraged" workers who have abandoned their job search, and "marginally attached" individuals who have exited the workforce but could potentially rejoin it in the future.

Many economists regard the U-6 as a more insightful indicator of a country's employment conditions, given its inclusivity. Both the U-3 and U-6 rates are regularly disclosed in the monthly job report by the Bureau of Labor Statistics (BLS), which serves as a vital tool for market analysts seeking to assess the overall economic health.

Basics

The U.S. government relies on the U-3 rate, a metric provided by the Bureau of Labor Statistics (BLS), as its official unemployment rate. This figure signifies the percentage of the entire labor force actively searching for employment in the previous four weeks.

Individuals who have refrained from job hunting within the same four-week timeframe are designated as "marginally attached" and are excluded from the unemployed count. This category encompasses those who have unsuccessfully sought employment at some point in the past twelve months, as well as individuals who have either pursued further education or experienced disability, with the potential of rejoining the labor force remaining uncertain.

Exploring the U-6 (Unemployment) Rate

Contrastingly, the U-6 rate incorporates the marginally attached segment of the labor force within its unemployment assessment. Moreover, it accounts for underemployed individuals, those desiring full-time employment but settling for part-time roles due to economic constraints. Unlike the U-3 rate, which categorizes such workers as employed, the U-6 classifies them as unemployed.

Furthermore, the U-6 rate encompasses the "discouraged" category – individuals seeking employment but who have relinquished their job search efforts. The Bureau of Labor Statistics (BLS) releases six-monthly unemployment statistics, with the U-3 being the officially recognized and most frequently cited rate. Meanwhile, the U-6 offers a more comprehensive perspective on the status of the American workforce.

Components of the U-6 Rate

In contrast, the U-6 rate incorporates the marginally attached and underemployed in its calculation. Underemployed individuals, opting for part-time work due to economic conditions, are deemed employed by the U-3 rate but unemployed by the U-6. Additionally, the U-6 rate accounts for the "discouraged" individuals who have abandoned job search efforts.

Determinants of the U-6 (Unemployment) Rate

Gallup, a prominent data analytics firm, emphasizes the U-6 rate as "the genuine unemployment rate," asserting that the widely-cited U-3 rate inadequately depicts the American joblessness landscape. Gallup highlights scenarios where skilled professionals, including engineers, resort to low-paying part-time positions for survival, remaining unaccounted for in the official unemployment rate, even if their income is as low as $20 per week. Furthermore, the U-3 rate fails to incorporate workers who are gainfully employed but have experienced reductions in their work hours.

All these situations collectively fall under the category of "underemployed," a group included in the U-6 rate calculation. Additionally, the U-3 rate excludes individuals who are unemployed but have abstained from job searching within the last four weeks, categorized as "discouraged" workers, a segment accurately accounted for by the U-6 rate. This alternative metric, as emphasized by Gallup, offers a more comprehensive understanding of the multifaceted nature of unemployment.

Monitoring the U-6 Rate

The Federal Reserve Bank of St. Louis, commonly known as FRED, continuously monitors the U-6 rate's historical progression through its website. Their chart, using data from the Bureau of Labor Statistics (BLS), reveals a striking U-6 rate of 22.9% in April 2020, coinciding with the initial nationwide COVID-19 shutdown. During the same period, the official U-3 rate stood at 14.7%. In January 2020, the U-6 rate had been a mere 6.9%, whereas the official U-3 rate was 3.5%. These figures underscore the significant impact of the pandemic on employment in the United States.

The U-6 (Unemployment) Rate Example

In the computation of the official U-3 unemployment rate, the Bureau of Labor Statistics (BLS) divides the aggregate count of unemployed individuals by the total labor force participants, subsequently multiplying this ratio by 100. For instance, the June 2019 monthly rate report disclosed a sum of 6.0 million unemployed individuals against a civilian labor force tallying 163.0 million, resulting in a seasonally adjusted U-3 unemployment rate of 3.7%.

In the January 2022 report, 1.5 million individuals were categorized as marginally attached to the labor force, while 3.7 million workers were engaged in part-time employment due to economic reasons. The seasonally adjusted U-6 unemployment rate was computed at 7.1%. 

When computing the U-6 rate, both the marginally attached group and part-time workers are incorporated into the numerator (total unemployed) and denominator (total labor force), except part-time workers, who solely influence the numerator since they are already accounted for within the labor force. It is noteworthy that the U-6 rate consistently surpasses the U-3 figure, arguably offering a more accurate portrayal of the American workforce's condition at any given time. It is imperative to understand that unemployment rates are founded on household surveys spanning all regions of the United States, as opposed to relying on the number of individuals applying for unemployment benefits.

The Impact of COVID-19

Starting in March 2020, the Bureau of Labor Statistics (BLS) has integrated additional inquiries into its Household Survey, aiming to assess the repercussions of the coronavirus pandemic on employment.

Here are some key findings from the survey conducted in January 2022:

• 15.4% of employed Americans engaged in telework on a partial basis.
• 6 million individuals faced job disruptions as their employers either shuttered or experienced a decline in business due to the pandemic.
• 1.8 million people were constrained from job-seeking activities due to pandemic-related factors.

Calculation Method of the U-6 (Unemployment) Rate

Every month, the Bureau of Labor Statistics (BLS) issues unemployment data derived from a survey of 60,000 households, encompassing roughly 110,000 individuals residing in approximately 2,000 diverse geographic regions, spanning both urban and rural areas. This survey is administered by personnel from the Census Bureau.

The calculation process is direct:

1. The U-3 unemployment rate is determined by considering the proportion of individuals declaring themselves as unemployed and actively seeking employment within the preceding month, relative to the overall civilian workforce.
2. In contrast, the U-6 rate encompasses not just the unemployed and underemployed but also individuals who have given up job hunting or temporarily withdrawn from the labor pool. It is calculated as a percentage of the entire civilian workforce.

Locating State-Specific U-6 (Unemployment) Rates

Annually, the Bureau of Labor Statistics (BLS) issues comprehensive unemployment statistics for each state, incorporating the U-6 rate along with five other unemployment metrics. The figures for the year 2022 have been made available on the BLS website. Conversely, while the U-3 data for individual states is updated monthly, the U-6 numbers are not included in these regular state-level reports.

Understanding 6 Variants of Unemployment Rates

Among the six "alternative measures" of labor utilization reported monthly by the Bureau of Labor Statistics (BLS), the U-1 unemployment rate is just one.

These alternative metrics encompass:

• U-1: Reflects the proportion of the civilian labor force enduring 15 weeks or more of unemployment.
• U-2: This signifies the percentage of the civilian labor force that has lost jobs or completed temporary positions.
• U-3: Represents the fraction of the civilian labor force currently unemployed and actively job-hunting within the past four weeks.
• U-4: Encompasses both the number of unemployed and discouraged job-seekers as a percentage of the total labor force.
• U-5: Indicates the total of unemployed individuals, discouraged job-seekers, and marginally attached workers, relative to the total labor force.
• U-6: Comprises all individuals included in U-5, along with part-time workers affected by economic conditions, presented as a percentage of the total labor force.

Conclusion

The monthly reported U-3 unemployment rate garners meticulous attention, serving as a pivotal gauge of the U.S. economy's vitality. In contrast, the U-6 rate presents a more encompassing view of economic well-being. It delves into factors such as individuals resorting to part-time employment due to a dearth of full-time opportunities, those who have relinquished their job-seeking efforts, and those temporarily departing from the workforce with the expectation of re-entering when conditions ameliorate. Crucially, the U-3 rate excludes this demographic, while the U-6 rate incorporates them into its assessment.