Real Unemployment Rate With Calculations
Does the Government Lie About Unemployment?
The real unemployment rate (U-6) is a broader definition of unemployment than the official unemployment rate (U-3). In January 2020, it was 6.9%.
The U-3 is the rate most often reported in the media. In the U-3 rate, the Bureau of Labor Statistics only counts people without jobs who are in the labor force. To remain in the labor force, they must have looked for a job in the last four weeks.
The following chart illustrates the discrepancy between the unemployment rate (U-3) and the real unemployment rate (U-6), covering data from 1994 to 2020.
Underemployed people are part-time workers who would prefer full-time jobs. The BLS counts them as employed and in the labor force.
The marginally attached are those who have looked for work in the last year but not the previous four weeks. They are not included in the labor force participation rate.
Among the marginally attached are the discouraged workers. They have given up looking for work altogether.
Discourage workers may have gone back to school, gotten pregnant, or become disabled. They may or may not return to the labor force, depending on their circumstances. Once they haven't looked for a job in 12 months, they're no longer counted as marginally attached.
The BLS issues both the U-3 and the U-6 in each month's jobs report. Surprisingly, there isn't as much media attention paid to the real unemployment rate. But even former Federal Reserve Chair Janet Yellen said it paints a clearer picture of actual U.S. unemployment.
How to Calculate the Real Unemployment Rate Formula
In January 2020 the real unemployment rate (U-6) was 6.9%. It's almost double the widely reported unemployment rate (U-3) of 3.5%. Here's the formula for calculating both.
Step 1: Calculate the official unemployment rate (U-3)
U-3 = 5.892 million unemployed workers / 164.606 million in the labor force = 3.6%.
Step 2. Add in marginally attached workers
There were 1.342 million people who were marginally attached to the labor force. Add this to both the number of unemployed and the labor force.
U-5 = (5.892 million + 1.342 million) / (164.606 million + 1.342 million) = 7.234 million / 165.948 million = 4.4%.
Step 3. Add in part-time workers
There were 4.182 million people who were working part-time but would prefer full-time work. Add them to the unemployed with marginal workers. They're already in the labor force.
U-6 = (7.234 million + 4.182 million) / (165.948 million) = 11.416 million / 165.948 million = 6.9%.
Compare the Real Unemployment Rate
To put things in perspective, here's the official unemployment rate compared to the real rate since 1994. That’s the first year the BLS collected data on U-6. The rates given are for January of each year. There are statistics on the unemployment rate for every year since 1929.
Throughout the years, the official rate is a little more than half the real rate. That remains true no matter how well the economy is doing. Even in 2000, when the official rate below the natural unemployment rate of 4.5%, the real rate was almost double, at 7.1%. In 2010, when the unemployment rate was its highest at 9.8%, the real rate was still almost double, at 16.7%.
|Year (as of January)||U3 (Official)||U6 (Real)||U3/U6||Comments|
|1994||6.6%||11.8%||56%||The first year BLS reported U6|
|2000||4.0% (Record Low)||7.1%||56%||Stock market crashed in March|
|2002||5.7%||9.5%||60%||U3 closest to U6|
|2009||7.8%||14.2%||55%||High of 10.2% in Oct|
|2016||4.9%||9.9%||49%||Both return to pre-recession levels|
The point is to make sure you compare apples to apples. If you say the government is lying during a recession, then you've got to make the same argument when times are good. (Source: “Table A-1. Historical Household Data,” Bureau of Labor Statistics.)
The Depression Had the Worst Real Unemployment Rate
The unemployment rate during the Great Depression was 25%. Unemployment rates were calculated differently back then, but this was likely similar to the real rate today. Did the real unemployment rate during the Great Recession ever reach that level? Despite what many people say, a simple calculation shows this is not true.
In October 2009, the official unemployment rate (U-3) reached a height of 10.2%. There were 15.7 million unemployed among 153.98 million in the labor force. Add to that the 2.4 million marginally attached, including 808,000 discouraged workers, and you get a U-5 rate of 11.6%. Then add in the 9.3 million part-time workers who preferred full-time, and you get the U-6 rate of 17.5%. That gives a better sense of 2009 unemployment.
Therefore, even if you stretch the definition of unemployed to include marginally attached and part-time workers, unemployment was never as bad as during the height of the Great Depression. But, unemployment wasn't that high throughout the entire Depression, which lasted for 10 years. If you wanted to make the case, you could say the real unemployment at the height of the Great Recession was as high as unemployment during parts of the Great Depression.