What Is the Real Unemployment Rate?
How to Calculate the Real Unemployment Rate
The real unemployment rate (U-6) is a broader definition of unemployment than the official unemployment rate (U-3). In March 2021, U-6 was 10.7%, which is lower than February 2021. It's much better than the 22.9% rate in April 2020 that was close to the Great Depression's record unemployment rate of 25.6%.
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 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 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. 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
In March 2021 the real unemployment rate (U-6) was 10.7%. It's much higher than the widely reported unemployment rate (U-3) of 6.0%. Simply put, it's calculated by adding officially unemployed workers to marginally attached workers to under-employed workers, and dividing that figure by the total labor force (including the marginally attached).
Step 1. Add the number of officially unemployed and marginally attached workers to those who work part-time for economic reasons
9.710 million (unemployed) + 1.853 million (marginally attached) + 5.826 million (part-time workers) = 17.389 million un- and under-employed
Step 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.)
160.558 million (labor force) + 1.853 million (marginally attached) = 162.411 million total
Step 3. To calculate real unemployment (U-6), divide the total number of un- and under-employed (Step 1) by the total labor force, including marginally attached (Step 2)
U-6, the real unemployment rate = 17.389 million / 162.411 million = 10.7%.
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.
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 was 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|
|2000||4.0% (Record Low)||7.1%||56%||Stock market crashed in March|
|2002||5.7%||9.5%||60%||U-3 closest to U-6|
|2009||7.8%||14.2%||55%||High of 10.2% in Oct|
|2016||4.9%||9.9%||49%||Both return to pre-recession levels|
|2020||3.5%||6.9%||51%||The COVID-19 pandemic started in March|
Depression Had Worst Real Unemployment Rate
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. Has the real unemployment rate during the 2020 recession reached 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 22.9%. That gives a better sense of 2020 unemployment.
If you stretch the definition of "unemployed" to include marginally attached and part-time workers, spring 2020 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 almost as high as unemployment during parts of the Great Depression.