Question: What Is the Real Unemployment Rate?
Answer: The real unemployment rate (U-6) is almost double the widely reported rate (U-3) issued in each month's jobs report. The Bureau of Labor Statistics (BLS) reports on both each month, but there isn't as much media attention paid to the real unemployment rate. However, it may paint a clearer picture of true unemployment in the U.S.
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 (hopefully).
Once they haven't looked for a job in the past four weeks are no longer counted as unemployed or in the labor force. They are added to a group the BLS calls marginally attached. Among them are the discouraged workers, who have given up looking for work altogether. The rest have gone back to school, gotten pregnant or 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: BLS, Definitions)
The BLS considers part-time workers as employed. However, it does count those who would are working part-time, but would prefer a full-time job. These 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
In March 2014, the real unemployment rate (U-6) was 12.7%, while the widely-reported unemployment rate (U-3) was 6.7%. Here's how to calculate both.
Step 1. Calculate the official unemployment rate:
U-3 = 10.486 million unemployed workers / 156.227 million in the labor force = 6.7%.
Step 2. Add in marginally attached workers: There were 2.168 million people who were marginally attached to the labor force. Add this to both the number of unemployed and the labor force.
U-5 = 12.654 million / 158.395 million = 8.0%.
Step 3. Add in part-time workers: There were 7.411 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 = 20.065 million / 158.395 million = 12.7%. (Source: BLS, Table A-15)
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. This remains true no matter how well or poorly the economy is doing. Even in 2000, when the official unemployment rate was painfully low at 4.0%, the real unemployment rate was just about double, at 7.1%. In 2010, when unemployment was its highest at 9.8%, the real rate was still nearly double, at 16.7%.
- January 1994: the official rate was 6.6% vs the real rate of 11.8%
- 1995: 5.6% vs 10.2%
- 1996: 5.6% vs 9.8%
- 1997: 5.3% vs 9.4%
- 1998: 4.6% vs 8.4%
- 1999: 4.3% vs 7.7%
- 2000: 4.0% vs 7.1% -- when unemployment was the lowest, right before the stock market crash in March.
- 2001: 4.2% vs 7.3%
- 2002: 5.7% vs 9.5%
- 2003: 5.8% vs 10.0%
- 2004: 5.7% vs 9.9%
- 2005: 5.3% vs 9.3%
- 2006: 4.7% vs 8.4%
- 2007: 4.6% vs 8.4%
- 2008: 5.0% vs 9.2%
- 2009: 7.8% vs 14.2%
- 2010: 9.8% vs 16.7% -- when both January unemployment rates were the highest.
- 2011: 9.1% vs 16.2%
- 2012: 8.3% vs 15.1%
- 2013: 7.9% vs 14.4%
- 2014: 6.6% vs 12.7%
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 unemployment rate was really 16.7%, 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%. 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%. 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%. This was very high, and gives 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 really 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. Article updated March 4, 2014.