What Is the Real Unemployment Rate?

Does the Government Lie About Unemployment?

homeless.jpg
The real unemployment rate includes people who have stopped looking for work because they are too discouraged. Photo: Getty Images

Definition: The real unemployment rate (U-6) is the widely reported rate (U-3) plus those who are marginally attached and discouraged. It also includes part-time workers who would prefer full-time jobs. For that reason, it is nearly double the U-3 report. The Bureau of Labor Statistics (BLS) issues both in each month's jobs report. Surprisingly, there isn't as much media attention paid to the real unemployment rate.

But even Federal Reserve Chair Janet Yellen said it paints a clearer picture of true U.S. unemployment.

In the widely reported unemployment rate (U-3), the BLS only counts those who have looked for a job in the past four weeks as unemployed. They're included in the labor force because their jobless situation is only temporary.Once they haven't looked for a job in the past four weeks are no longer counted as unemployed or in the labor force. The BLS adds them to a group it calls the marginally attached. For more, see Labor Force Participation Rate.

Among them are the discouraged workers, who have given up looking for work altogether. Others have gone back to school, gotten pregnant, or have become disabled. They may or may not eventually 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.

(Source: "Definitions," Bureau of Labor Statistics.)

The BLS includes part-time workers in the employment numbers. It asks whether they would prefer a full-time job. Those people are considered underemployed.

The U-6, or real unemployment rate, includes everyone who wants a full-time job but doesn't have one.

It counts the marginally attached (including discouraged workers) and the part-timers who would prefer a full-time job. As a result, the real or true unemployment rate is much higher.

Real Unemployment Rate Formula Using Current Statistics

In December, the real unemployment rate (U-6) was 9.2 percent. That's double the widely-reported unemployment rate (U-3) of 4.7 percent.  Here's how to calculate both:

Step 1. Calculate the official unemployment rate: 

U-3 = 7.529 million unemployed workers / 159.640 million in the labor force = 4.7 percent.

Step 2. Add in marginally attached workers: There were 1.684 million people who were marginally attached to the labor force. Add this to both the number of unemployed and the labor force.

U-5 = 9.213 million / 161.324 million = 5.7 percent.

Step 3. Add in part-time workers: There were 5.598 million people who were working part-time because they couldn't get full-time work, although they'd prefer it. Add them to the unemployed, they're already in the labor force.

U-6 =  14.811 million / 161.324 million = 9. 2percent. (Source: "Table A-15," Bureau of Labor Statistics.)

Compare the Real Unemployment Rate

To put things in perspective here's the official unemployment rate compared to the real rate since 1995 (the first year the BLS collected data on U-6). The rates given are for January of each year.

You can quickly tell that 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 unemployment rate was at the natural unemployment rate of 4.0%, the real unemployment rate was just about double, at 7.1%. In 2010, when the unemployment rate was its highest at 9.8%, the real rate was still nearly double, at 16.7%.

Year (as of January)U3 (Official)U6 (Real)U3/U6Comments
19946.6%11.8%56%The first year BLS reported U6
19955.6%10.2%55% 
19965.6%9.8%57% 
19975.3%9.4%56% 
19984.6%8.4%55% 
19994.3%7.7%56% 
20004.0% (Record Low)7.1%56%Stock market crashed in March
20014.2%7.3%58% 
20025.7%9.5%60%U3 closest to U6
20035.8%10.0%58% 
20045.7%9.9%58% 
20055.3%9.3%57% 
20064.7%8.4%56% 
20074.6%8.4%55% 
20085.0%9.2%54% 
20097.8%14.2%55% 
20109.8%16.7%59% Record highs in January
20119.1%16.2%56% 
20128.3%15.2%55% 
20138.0%14.5%55% 
20146.6%12.7%52% 
20155.7% 11.3% 50% 
20164.9%  9.9%49%Both return to pre-recession levels

The point is to make sure you compare apples to apples. If you want to say the government is lying with its statistics during the recession, and the 2010 real unemployment rate was 16.7 percent, then you've got to make the same argument when times are good. (Source: BLS,  Table A-1. Historical Household Data)

Was the Real Unemployment Rate Ever as Bad as During the Depression?

The unemployment rate during The Great Depression was 25 percent. Did the real unemployment rate during the Great Recession ever reach that level? Despite what many people say, a simple calculation will show this is not true.

In October 2009, the official unemployment rate (U-3) reached its height of 10.2 percent. 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 percent. Then add in the 9.3 million part-time workers who preferred full-time, and you get the U-6 rate of 17.5 percent. That was very high and gave a better sense of unemployment.

Therefore, if you stretched the definition of unemployed to include marginally attached and part-time workers, unemployment was not as bad as during the height of the Great Depression. However, unemployment wasn't at that high a level throughout the entire Depression, which lasted for ten years. Therefore, if you wanted to make the case, you could say the real unemployment at the height of the Great Recession was as high as during parts of the Great Depression. 

Continue Reading...