What Is the Real Unemployment Rate?

How To Calculate the Real Unemployment Rate

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The U-6 real unemployment rate includes the underemployed, the marginally attached, and discouraged workers. It's usually much higher than the U-3 unemployment rate, which is the rate most often reported in the media. The Bureau of Labor Statistics only counts people without jobs who are included in the labor force for the U-3 rate. They must have looked for a job in the last four weeks to remain in the labor force.

The U-6 real unemployment rate is a broader definition of unemployment than the official U-3 rate. The U-6 was 7.3% in December 2021, down from the rate of 7.7% seen in November 2021. This continued a downward trend that began in December of 2020. It also marks a vast improvement from the 22.9% rate in April 2020 that was close to the record unemployment rate of 25.6% set in May 1933.

This chart reveals the discrepancy between the unemployment rate (U-3) and the real unemployment rate (U-6) between 1994 and 2021.

Underemployed people are part-time workers who would prefer full-time jobs. The BLS counts them as being employed and in the labor force. Marginally attached workers have looked for jobs in the last year, but not in the previous four weeks. They're not included in the labor force participation rate.

Discouraged workers are marginally attached workers who aren't looking for work because they believe they can't qualify for available jobs, or because there aren't any. They're no longer counted as marginally attached when they haven't looked for a job in 12 months.

The BLS issues both the U-3 and the U-6 rates in each month's jobs report. There isn't as much media attention paid to the real unemployment rate.

How to Calculate the Real Unemployment Rate

The real unemployment rate (U-6) was 7.3% in December 2021. This was much higher than the reported unemployment rate (U-3) of 3.9%.

Three steps are used to calculate the real rate:

  1. Add the number of officially unemployed and marginally attached workers to those who work part time for economic reasons: 6.319 million (unemployed) + 1.639 million (marginally attached) + 3.929 million (part-time workers) = 11.887 million un- and under-employed.
  2. Add the number actively in the labor force to the number of marginally attached workers: 162.294 million (labor force) + 1.639 million (marginally attached) = 163.933 million total.
  3. Divide the total number of un- and under-employed by the total labor force, including marginally attached: 11.887 million / 163.933 million = .0725, or about 7.3%.

Compare the Real Unemployment Rate

The official unemployment rate has been a little more than half the real rate throughout the years. That remains true no matter how well the economy is doing. The unemployment real rate stayed at 6.9% as the official rate dropped to 3.9% in December 2020. Meanwhile, the unemployment rate was 10.0% in October 2009, its highest after the 2008 recession. The real rate, however, was still a much higher 17.1%.

The BLS has published the unemployment rate every year since 1929.

The chart below puts things in perspective. It compares the official unemployment rate to the real rate since 1994, the first year the BLS collected data on U-6. The rates given are for January of each year.

Year (as of January) U-3 (Official) U-6 (Real) U-3 as a Percent of U-6 Comments
1994 6.6% 11.7% 56% The first year BLS reported U-6
1995 5.6% 10.1% 55%  
1996 5.6% 9.8% 57%  
1997 5.3% 9.4% 56%  
1998 4.6% 8.4% 55%  
1999 4.3% 7.6% 57%  
2000 4.0% 7.0% 57% Stock market crashed in March
2001 4.2% 7.3% 58%  
2002 5.7% 9.4% 61% U-3 closest to U-6
2003 5.8% 9.9% 59%  
2004 5.7% 9.8% 58%  
2005 5.3% 9.2% 58%  
2006 4.7% 8.4% 56%  
2007 4.6% 8.3% 55%  
2008 5.0% 9.1% 55%  
2009 7.8% 14.1% 55% High of 10.2% in Oct
2010 9.8% 16.6% 59%  
2011 9.1% 16.1% 57%  
2012 8.3% 15.1% 55%  
2013 8.0% 14.5% 55%  
2014 6.6% 12.6% 52%  
2015 5.7% 11.2% 51%  
2016 4.8% 9.7% 49% Both return to pre-recession levels
2017 4.7% 9.2% 51%  
2018 4.0% 8.0% 50%  
2019 4.0% 8.0% 50%  
2020 3.5% 6.9% 51% The COVID-19 pandemic started in March
2021 6.3% 11.1% 57%

Compare the Highest Unemployment Rates

The unemployment rate during the Great Depression surpassed 25% between March and June of 1933. Unemployment rates were calculated differently back then, but this was likely similar to the real rate today.

The official unemployment rate (U-3) reached a peak of 14.8% in April 2020. The real unemployment rate, including discouraged, marginally attached, and part-time, was 22.9%. This may give a better sense of how the labor force fared in 2020.

You could say that it took the Great Depression several years to get to the level it reached if you wanted to make a case for unemployment being worse during the 2020 recession. And the 2020 recession nearly equaled it in just a matter of months.