Real Unemployment Rate With Calculations

What's the Real Unemployment Rate & Why Does It Matter?

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The real unemployment rate (U-6) is a broader definition of unemployment than the official unemployment rate (U-3). In August 2020, U-6 was 14.2%. It's down from the 22.8% rate in April that exceeded the highest rate during the Great Recession.

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 U-6, or real unemployment rate, includes the underemployed, the marginally attached, and discouraged workers. For that reason, it's usually significantly higher than the U-3 rate.

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.

Discouraged workers are marginally attached workers that aren't looking for work because they believe there aren't any jobs or that they can't qualify for jobs that are available. 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.

How to Calculate the Real Unemployment Rate Formula

In August 2020 the real unemployment rate (U-6) was 14.2%. It's much higher than the widely reported unemployment rate (U-3) of 8.4%. Here's the formula for calculating both.

Step 1: Calculate the official unemployment rate (U-3)

U-3 = 13.550 million unemployed workers / 160.838 million in the labor force = 8.4%.

Step 2. Add in marginally attached workers

There were 2.080 million people who were marginally attached to the labor force. Add this to both the number of unemployed and the labor force.

U-5 = (13.550 million + 2.080 million) / (160.838 million + 2.080 million) = 15.630 million / 162.918 million = 9.6%.

Step 3. Add in part-time workers

There were 7.527 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 = (15.630 million + 7.572 million) / (162.918 million) = 23.202 million / 162.918 million = 14.2%.

Compare the Real Unemployment Rate

To put things in perspective, the chart below compares the official unemployment rate 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.

The BLS publishes 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, the unemployment rate was 9.8% -- its highest after the 2008 recession -- and the real rate was still almost double, at 16.7%.

Year (as of January) U-3 (Official) U-6 (Real) U-3/U-6 Comments
1994 6.6% 11.8% 56% The first year BLS reported U-6
1995 5.6% 10.2% 55%  
1996 5.6% 9.8% 57%  
1997 5.3% 9.4% 56%  
1998 4.6% 8.4% 55%  
1999 4.3% 7.7% 56%  
2000 4.0% (Record Low) 7.1% 56% Stock market crashed in March
2001 4.2% 7.3% 58%  
2002 5.7% 9.5% 60% U-3 closest to U-6
2003 5.8% 10.0% 58%  
2004 5.7% 9.9% 58%  
2005 5.3% 9.3% 57%  
2006 4.7% 8.4% 56%  
2007 4.6% 8.4% 55%  
2008 5.0% 9.2% 54%  
2009 7.8% 14.2% 55% High of 10.2% in Oct
2010 9.8% 16.7% 59%  
2011 9.1% 16.2% 56%  
2012 8.3% 15.2% 55%  
2013 8.0% 14.5% 55%  
2014 6.6% 12.7% 52%  
2015 5.7% 11.3% 50%  
2016 4.9% 9.9% 49% Both return to pre-recession levels
2017 4.8% 9.4% 51%  
2018 4.4% 8.2% 50%  
2019 4.0% 8.1% 50%  
2020 3.6% 6.9 52% Data from January, before COVID

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. 

The Depression Had the Worst Real Unemployment Rate

The unemployment rate during the Great Depression surpassed 25% from March 1933 to June 1933. Unemployment rates were calculated differently back then, but this was likely similar to the real rate today. Did the real unemployment rate during the 2020 recession ever reach that level?

In April 2020, the official unemployment rate (U-3) reached a height of 14.7%. The real unemployment rate, including discouraged, marginally attached, and part-time, was 22.8%. That gives a better sense of 2020 unemployment.

Even if you stretch the definition of "unemployed" to include marginally attached and part-time workers, unemployment was almost 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 2020 recession was nearly as high as unemployment during parts of the Great Depression.

Article Sources

  1. Bureau of Labor Statistics. "Employment Situation Summary," Table A-15. Accessed Sept. 4, 2020.

  2. Federal Reserve Bank of St. Louis. "Unemployment Rate for United States." Accessed Sept. 4, 2020.

  3. OECD. "Visible Underemployment Definition." Accessed Sept. 4, 2020.

  4. Bureau of Labor Statistics. "Labor Force Characteristics." Accessed Sept. 4, 2020.

  5. Bureau of Labor Statistics. "Table A-1. Historical Household Data,” Accessed Sept. 4, 2020.

  6. Federal Reserve Bank of St. Louis. "Unemployment Rate for United States." Accessed Sept. 4, 2020.