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Guide to Unemployment
Explore The Guide
• Know the Lingo
• Negotiate Severance—If You Can
• How to File for Unemployment Insurance
• Managing Finances During Unemployment
• Understanding the Unemployment Rate
• Unemployment and the Economy
• Dictionary of Economic Terms A-F
• Dictionary of Economic Terms G-Z

# Unemployment Rate

## What Is the Unemployment Rate?

The unemployment rate is the percentage of the labor force without a job. It is a lagging indicator, meaning that it generally rises or falls in the wake of changing economic conditions, rather than anticipating them. When the economy is in poor shape and jobs are scarce, the unemployment rate can be expected to rise. When the economy is growing at a healthy rate and jobs are relatively plentiful, it can be expected to fall.

### Key Takeaways

• The unemployment rate is the proportion of the labor force that is not currently employed but could be.
• There are six different ways the unemployment rate is calculated by the Bureau of Labor Statistics using different criteria.
• The most comprehensive statistic reported is called the U-6 rate, but the most widely used and cited is the U-3 rate.
• The U-3 unemployment rate for January 2022 was 4%.
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## Understanding the Unemployment Rate

The U.S. unemployment rate is released on the first Friday of every month (with a few exceptions) for the preceding month. The current and past editions of the report are available on the website of the Bureau of Labor Statistics (BLS). Users can generate and download tables showing any of the labor market measures named above for a specified date range.

In the U.S., the official and the most commonly cited national unemployment rate is the U-3, which the BLS releases as part of its monthly employment situation report. It defines unemployed people as those who are willing and available to work and who have actively sought work within the past four weeks.

According to the BLS, those with temporary, part-time, or full-time jobs are considered employed, as are those who perform at least 15 hours of unpaid work for a family business or farm. The unemployment rate is seasonally adjusted to account for predictable variations, such as extra hiring during the holidays. The BLS also provides the unadjusted rate.

The unemployment rate for January 2022 increased slightly to 4% from December's 3.9% and remained above its pre-pandemic level of 3.5% in February 2020. The economy added 467,000 nonfarm payrolls during this period, much more than was estimated by economists.

### U-3 vs. U-6

The U-3 is not the only metric available, and it measures unemployment fairly narrowly. The more comprehensive U-6 rate, often called the "real" unemployment rate, is an alternative measure of unemployment that includes groups such as discouraged workers who have stopped looking for a new job and the underemployed who are working part-time because they can't find full-time employment. The U-6 "real unemployment" rate for January 2022 was 7.1%, down from 7.3% in December 2021.

To calculate the U-3 unemployment rate, the number of unemployed people is divided by the number of people in the labor force, which consists of all employed and unemployed people. The ratio is expressed as a percentage. The January 2022 U-3 unemployment rate as reported by the BLS was 4%.

\begin{aligned} &\text{U-3} = \frac { \text{Unemployed} }{ \text{Labor Force} } \times 100 \\ \end{aligned}

Many people who would like to work but cannot (due to a disability, for example) or have become discouraged after looking for work without success, are not considered unemployed under this definition; since they are not employed either, they are categorized as outside the labor force. Critics see this approach as painting an unjustifiably rosy picture of the labor force. U-3 is also criticized for making no distinction between those in temporary, part-time, and full-time jobs, even in cases where part-time or temporary workers would rather work full-time but cannot due to labor market conditions.

## Alternative Measures of Unemployment

In response to concerns that the official rate does not fully convey the health of the labor market, the BLS publishes five alternative measures: U-1, U-2, U-4, U-5, and U-6. Though these are often referred to as unemployment rates (U-6, in particular, is often called the "real" unemployment rate), U-3 is technically the only official unemployment rate. The others are measures of "labor underutilization."

### U-1

People who have been unemployed for 15 weeks or longer, expressed as a percentage of the labor force.

\begin{aligned} &\text{U-1} = \frac { \text{Unemployed 15+ Weeks} }{ \text{Labor Force} } \times 100 \\ \end{aligned}

### U-2

People who lost their jobs, or whose temporary jobs ended, as a percentage of the labor force.

\begin{aligned} &\text{U-2} = \frac { \text{Job Losers} }{ \text{Labor Force} } \times 100 \\ \end{aligned}

### U-4

Unemployed people, plus discouraged workers, as a percentage of the labor force (plus discouraged workers).

\begin{aligned} &\text{U-4} = \frac { \text{Unemployed} + \text{Discouraged Workers} }{ \text{Labor Force} + \text{Discouraged Workers} } \times 100 \\ \end{aligned}

Discouraged workers are those who are available to work and would like a job, but have given up actively looking for one. This category includes people who feel they lack the necessary qualifications or education, who believe there is no work available in their field, or who feel they are too young or old to find work.

Those who feel unable to find work due to discrimination also fall under this category. Note that the denominator—normally the labor force—is adjusted to include discouraged workers, who are not technically part of the labor force.

### U-5

Unemployed people, plus those who are marginally attached to the labor force, as a percentage of the labor force (plus the marginally attached).

\begin{aligned} &\text{U-5} = \frac { \text{Unemployed} + \text{Marginally Attached} }{ \text{Labor Force} + \text{Marginally Attached} } \times 100 \\ \end{aligned}

People who are marginally attached to the labor force include discouraged workers and anyone else who would like a job and has looked for one in the past 12 months but have given up actively searching. As with U-4, the denominator is expanded to include the marginally attached, who are not technically part of the labor force.

### U-6

Unemployed people, plus people who are marginally attached to the labor force, plus those who are employed part-time for economic reasons, as a percentage of the labor force (plus marginally attached).

\begin{aligned} &\text{U-6} = \frac { \text{Unemployed} + \text{MA} + \text{PTER} }{ \text{Labor Force} + \text{MA} } \times 100 \\ &\textbf{where:} \\ &\text{MA} = \text{marginally attached} \\ &\text{PTER} = \text{part-time for economic reasons} \\ \end{aligned}

This metric is the BLS's most comprehensive. In addition to the categories included in U-5, it accounts for people who have been forced to settle for part-time work even though they want to work full-time. This category is often referred to as "underemployed," although that label arguably includes full-time workers who are overqualified for their jobs. The denominator for this ratio is the same as in U-5.

## Collection of Unemployment Data

Official U.S. employment statistics are produced by the BLS, an agency within the Department of Labor (DOL). Every month the Census Bureau, part of the Department of Commerce (DOC), conducts the Current Population Survey (CPS) using a sample of approximately 60,000 households, or about 110,000 individuals.

The survey collects data on individuals in these households by race, ethnicity, age, veteran status, and gender (but only allowing for categories of men or women), all of which—along with geography—add nuance to the employment data. The sample is rotated so that 75% of the households remain constant from month to month and 50% from year to year. Interviews are conducted in person or by phone.

The survey excludes individuals under the age of 16 and those who are in the Armed Forces (hence references to the "civilian labor force"). People in correctional facilities, mental healthcare facilities, and similar institutions are also excluded. Interviewers ask a series of questions that determine employment status, but do not ask whether respondents are employed or unemployed. Nor do the interviewers themselves assign employment status; they record the answers for the BLS to analyze.

Interviewers also collect information on industry, occupation, average earnings, union membership, and—for the jobless—whether they quit or were discharged (fired or laid off).

## What Are the Other Measures of U.S. Unemployment?

American unemployment rates utilize five measures in addition to the headline H3 figures: U-1, U-2, U-4, U-5, and U-6. Each of these incrementally considers additional groups of individuals and labels them as unemployed (e.g., those "underemployed" or working part-time but seeking full employment, etc.) The U-6 number is sometimes referred to as the "real" unemployment rate since it is the most comprehensive.

## What's the Difference Between U-3 and U-6 Unemployment Rates?

U-3 is the headline unemployment number that we see in the news. It looks at those out-of-work Americans who have been looking for a job within the past four weeks. The more comprehensive U-6 includes everyone in U-3 plus those with only temporary work and people who are considered marginally attached to the labor force. These include those who have stopped looking for a job, as well as part-time workers unable to work full-time for economic reasons.

## How Is U.S. Unemployment Data Collected?

The U.S. Bureau of Labor Statistics, or BLS, surveys approximately 60,000 households in person or over the phone. The responses are later aggregated by race, ethnicity, age, veteran status, and gender, all of which—along with geography—add greater detail to the employment picture.

### Article Sources

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7. U.S. Bureau of Labor Statistics. "Employed." Accessed Feb. 4, 2022.

8. U.S. Bureau of Labor Statistics. "How Are Seasonal Fluctuations Taken Into Account?" Accessed Feb. 4, 2022.

9. U.S. Bureau of Labor Statistics. "The Employment Situation—February 2020." Accessed Feb. 4, 2022.

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12. U.S. Bureau of Labor Statistics. "How the Government Measures Unemployment." Accessed Feb. 4, 2022.