What Is the Real Unemployment Rate?

How to Calculate the Real Unemployment Rate

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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 2021, the U-6 was 8.8%, which is lower than the rate of 9.2% seen in July 2021. It's much better than the 22.9% rate in April 2020 that was close to the record unemployment rate of 25.6% in May 1933.

The U-3 is the rate most often reported in the media. For the U-3 rate, the Bureau of Labor Statistics only counts people without jobs who are included 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 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 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 are 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 there aren't any. 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

In August 2021, the real unemployment rate (U-6) was 8.8%. It's much higher than the reported unemployment rate (U-3) of 5.2%. There are three steps for calculating the real rate:

  1. Add the number of officially unemployed and marginally attached workers to those who work part-time for economic reasons: 8.384 million (unemployed) + 1.577 million (marginally attached) + 4.469 million (part-time workers) = 14.43 million un- and underemployed.
  2. Add the number actively in the labor force to the number of marginally attached workers. (Part-time workers are already considered part of the labor force): 161.537 million (labor force) + 1.577 million (marginally attached) = 163.114 million total.
  3. Divide the total number of un- and under-employed by the total labor force, including marginally attached: 14.43 million / 163.114 million = .088, or 8.8%.

Compare the Real Unemployment Rate

Throughout the years, the official rate has been 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 dropped to 3.8%, the real rate nearly doubled it at 6.9%. In October 2009, the unemployment rate was 10.0%—its highest after the 2008 recession—and the real rate was still a much higher 17.1%.

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

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.

Year (as of January) U-3 (Official) U-6 (Real) U3 as a Percent of U6 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 1933 and June 1933. Unemployment rates were calculated differently back then, but this was likely similar to the real rate today.

In April 2020, the official unemployment rate (U-3) reached a height of 14.8%. The real unemployment rate, including discouraged, marginally attached, and part-time, was 22.9%. That gives a better sense of 2020 unemployment.

If you wanted to make a case for unemployment being worse during the 2020 recession, you could say that it took the Great Depression several years to get to the level it reached, while the 2020 recession nearly equaled it in two months.