Real Unemployment Rate With Calculations

Does the Government Lie About Unemployment?

homeless.jpg
••• Photo: Getty Images

The real unemployment rate (U-6) is a broader definition of unemployment than the official unemployment rate (U-3). In April 2019, it was 7.3%.

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 is around double the U-3 report.

The following chart illustrates the discrepancy between the unemployment rate (U-3) and the real unemployment rate (U-6), covering data from 1994 to 2019.

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. They could have gone back to school, gotten pregnant, or become disabled. They may or may not 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. 

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

How to Calculate the Real Unemployment Rate Formula

In April 2019, the real unemployment rate (U-6) was 7.3%. It's more than double the widely reported unemployment rate (U-3) of 3.6%. Here's the formula for calculating both.

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

U-3 = 5.824 million unemployed workers / 162.470 million in the labor force = 3.6%.

Step 2. Add in marginally attached workers

There were 1.417 million people who were marginally attached to the labor force. Add this to both the number of unemployed and the labor force.

U-5 = (5.824 million + 1.417 million) / (162.470 million + 1.417 million) = 7.241 million / 163.887 million = 4.4%.

Step 3. Add in part-time workers

There were 4.654 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 = (7.241 million + 4.654 million) / (163.887 million) = 11.895 million / 163.887 million = 7.3%. (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 1994. That’s the first year the BLS collected data on U-6. The rates given are for January of each year. To see unemployment since 1929, go to Unemployment Rate by Year.

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, when the unemployment rate was its highest at 9.8%, the real rate was still almost double, at 16.7%.

Year (as of January) U3 (Official) U6 (Real) U3/U6 Comments
1994 6.6% 11.8% 56% The first year BLS reported U6
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% U3 closest to U6
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%

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. (Source: “Table A-1. Historical Household Data,” Bureau of Labor Statistics.)

The Depression Had the Worst Real Unemployment Rate

The unemployment rate during the Great Depression was 25%. Unemployment rates were calculated differently back then, but this was likely similar to the real rate today. Did the real unemployment rate during the Great Recession ever reach that level? Despite what many people say, a simple calculation shows this is not true.

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

Therefore, even if you stretch the definition of unemployed to include marginally attached and part-time workers, unemployment was never 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 Great Recession was as high as unemployment during parts of the Great Depression