U-3 vs. U-6 Unemployment Rate: What's the Difference?

U-3 vs. U-6 Unemployment Rate: An Overview

The unemployment rate is the percentage of people in the labor force who are unemployed and available to work. It is expressed using different rates, including the U-3 and U-6 unemployment rates.

The U-3 unemployment rate is the most commonly reported rate in the United States, representing the number of unemployed people actively seeking a job. The U-6 rate covers discouraged, underemployed, and unemployed workers in the country.

U-3 gets the most media attention when released each month by the Bureau of Labor Statistics (BLS). But many economists view the U-6 rate as the more meaningful because it covers a larger percentage of people who are unemployed.

U-3 Unemployment Rate

The official unemployment rate is known as the U-3 rate or simply U3. It measures the number of people who are jobless but actively seeking employment.

The rate is measured by the BLS, which contacts 60,000 randomly selected households across the country and records the employment status of each person 16 years old and older.

The information gathered by the agency through surveys and social insurance statistics (which reflects the number of people who are drawing unemployment benefits) is published each month, giving a picture of the employment status of the nation's working population.

The unemployment rate is a lagging rate. It changes months after an economy changes directions. It moves higher when an economy experiences hardships and moves lower when the economy strengthens.

For example, unemployment rates spiked dramatically in 2020 due to the wide-ranging economic impact of the COVID-19 pandemic. But the unemployment situation was very different two years later. Total nonfarm payroll employment rose by 678,000 in February 2022, and the unemployment rate edged down to 3.7%.

Criticism of U-3

U-3 is often criticized for being too simple. Many economists believe it fails to take the whole picture into account because it includes only people who are actively seeking employment. It actually excludes individuals who work part-time but want full-time work and discouraged workers. The latter are unemployed individuals who are able to work but haven't looked for a job for the last four weeks.

Here are a few examples of individuals who wouldn't be included in the U-3 rate:

• A stonemason who wants to work but became discouraged by a lack of opportunity in the midst of a deep economic recession
• A marketing executive who was laid off at age 57 and stopped scheduling new job interviews because they repeatedly encountered age discrimination
• A person who only works one six-hour shift per week because no full-time jobs are available in their area

U-6 Unemployment Rate

Unlike the U-3 rate, the U-6 unemployment rate includes a whole swath of unemployed people. It is seen by many as more in line with what it means to be unemployed.

This rate accounts for anyone who:

• Though seeking employment within the previous 12 months has been unable to secure a job and has not searched for work in the past four weeks
• Has gone back to school
• Has become disabled
• Is underemployed or working part-time hours

By capturing everyone who exists on the margins of the labor market, the U-6 rate provides a broad picture of the underutilization of labor in the country. In this sense, the U-6 rate may be considered the true unemployment rate.

For example, with the effects of the pandemic being felt in September 2020, the U-3 unemployment rate was 7.9%. The U-6 rate was 12.8%.

By February 2022, both rates had improved greatly; the U-3 rate dropped to 3.8% while the U-6 unemployment rate dropped to 7.2%.

Differences Between U-3 and U-6 Unemployment Rates

Other Employment Rate Categories

Unemployment is divided into six different categories that include the U-3 and U-6 rates. The others are:

• U-1: The percentage of people unemployed for 15 weeks or more
• U-2: The percentage of people who lost their jobs and anyone who finished a temporary job
• U-4: The total number of unemployed people, plus discouraged workers
• U-5: The total number of unemployed people, discouraged workers, and other marginally attached workers

Marginally attached workers are discouraged workers and those who are available and willing to work, but who have not looked for work in the prior four weeks for any reason. However, they have looked for work at some point in the previous 12 months.

The Bottom Line

The U.S. government tracks various rates of unemployment, labeled U-1 through U-6. The official unemployment rate is U-3, which covers the percentage of people in the labor force who are unemployed and looking for a job.

Proponents of U-6, which represents the unemployed, under-employed, and discouraged job seekers, believe that it presents a clearer view of the true state of unemployment in the country.