Actual unemployment rate

What Is the Actual Unemployment Rate?

The actual unemployment rate, often referred to as the U-6 unemployment rate, is a comprehensive measure of labor underutilization that goes beyond the commonly reported official unemployment rate. It is a key metric within Macroeconomics, offering a broader perspective on the health of the labor market. While the official rate (U-3) focuses solely on individuals actively seeking work, the actual unemployment rate includes additional categories of jobless individuals and those working fewer hours than desired, providing a more complete picture of the workforce's engagement and availability. This rate helps economists and policymakers understand the true extent of available labor resources and potential labor market slack.

History and Origin

The concept of measuring labor underutilization more broadly than just the officially unemployed dates back to critiques of the standard unemployment figures. The U.S. Bureau of Labor Statistics (BLS), the principal fact-finding agency for labor economics and statistics, began publishing alternative measures of labor underutilization, including the U-6 rate, to provide a more nuanced view of the employment situation. These alternative measures, ranging from U-1 to U-6, were developed to capture various aspects of unemployment and underemployment that the traditional U-3 rate does not. The U-6 measure, in particular, gained prominence as economists sought a more comprehensive gauge of the economy's ability to utilize its human capital. Policymakers have specifically highlighted the importance of looking beyond the official rate, especially concerning "involuntary part-time" work, which is a component of the actual unemployment rate.⁷

Key Takeaways

• The actual unemployment rate (U-6) is the broadest measure of unemployment published by the Bureau of Labor Statistics.
• It includes the officially unemployed, discouraged workers, other marginally attached workers, and those working part-time for economic reasons.
• The U-6 rate provides a more complete picture of labor market health and potential economic slack.
• It is often higher than the widely reported U-3 unemployment rate because it encompasses more categories of underutilized labor.

Formula and Calculation

The actual unemployment rate (U-6) is calculated by the Bureau of Labor Statistics using the following formula:

Where:

• Total Unemployed: Individuals without jobs who are actively looking for work and are available for work.
• Marginally Attached to Labor Force: Individuals who are not in the labor force, want and are available for work, and have looked for a job sometime in the prior 12 months, but were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey. This group includes discouraged workers.
• Part-Time for Economic Reasons: Individuals who want and are available for full-time work but have had to settle for part-time hours due to economic conditions, such as slack work or inability to find full-time employment. This is also referred to as underemployment.
• Civilian Labor Force: The sum of employed and unemployed individuals.

This formula, provided by the BLS, consolidates all these groups to provide a comprehensive view of labor utilization.⁶

Interpreting the Actual Unemployment Rate

Interpreting the actual unemployment rate involves understanding what its components reveal about the economy. A high U-6 rate relative to the U-3 rate indicates significant hidden unemployment or underemployment. For example, during a recession or slow economic recovery, the U-6 rate tends to be considerably higher than the U-3 rate, reflecting a larger number of individuals who have given up looking for work or are stuck in part-time jobs due to economic reasons.⁵ This divergence suggests that while the official unemployment rate might appear to be improving, there could still be substantial underlying weakness in the labor market. A rising U-6 can signal persistent challenges for workers, even as the headline U-3 rate declines. It helps analysts gauge the true level of labor force participation and capacity within the economy.

Hypothetical Example

Consider a hypothetical economy with the following statistics:

• Total Unemployed (U-3 definition): 5 million people
• Marginally Attached to the Labor Force (including discouraged workers): 2 million people
• Employed Part-Time for Economic Reasons: 3 million people
• Civilian Labor Force (based on U-3): 150 million people

Using the formula for the actual unemployment rate (U-6):

In this scenario, the official unemployment rate (U-3) would be (\frac{5 \text{ million}}{150 \text{ million}} \times 100 = 3.33%). However, the actual unemployment rate of 6.58% provides a more realistic view of the labor market, revealing that many more individuals are either out of work, have given up looking, or are underemployed despite wanting more hours. This demonstrates how the U-6 rate captures a broader segment of the workforce experiencing job-related challenges.

Practical Applications

The actual unemployment rate is a vital tool for various stakeholders in financial analysis and economic policy. Governments and central banks, such as the Federal Reserve, monitor the U-6 rate closely when making decisions related to monetary policy and fiscal stimulus. A persistently high U-6 rate might indicate that the economy still has significant labor market slack, suggesting that there is less pressure for wage inflation and more room for expansionary policies.

Economists use the U-6 rate to assess the true capacity utilization of the labor force and to forecast future trends in consumer spending and economic growth. For investors, the U-6 rate can provide insights into the real strength of the economy, influencing decisions in sectors sensitive to consumer income and employment stability. The Bureau of Labor Statistics regularly publishes these alternative measures, offering up-to-date data for analysis. For example, in July 2025, the U-6 rate in the United States was reported at 7.9%.⁴

Limitations and Criticisms

Despite its comprehensive nature, the actual unemployment rate (U-6) still has limitations and faces criticisms. Some argue that even U-6 doesn't fully capture all forms of underemployment or individuals who might desire work but are not actively seeking it for reasons not explicitly covered by the "marginally attached" definition. For instance, individuals who are employed full-time but are vastly overqualified for their positions, thus representing a misallocation of human capital, are not explicitly captured within the U-6 framework.

Additionally, critics point out that the various definitions and surveys used by statistical agencies might still miss some segments of the population facing employment challenges. For example, some argue that the official measures may not fully account for long-term discouraged workers who stopped looking for work years ago and are no longer classified as "marginally attached" due to the 12-month look-back period.³ Furthermore, like all economic indicators, the U-6 rate is a lagging indicator, meaning it reflects past economic conditions rather than predicting future ones. Policy decisions based solely on the U-6 rate, without considering other economic data, could lead to incomplete conclusions about the economy's direction.

Actual Unemployment Rate vs. Official Unemployment Rate

The primary distinction between the actual unemployment rate (U-6) and the official unemployment rate (U-3) lies in their scope.

The confusion between the two often arises because the U-3 rate receives significantly more media attention and is frequently cited as the unemployment rate. However, economists and analysts often prefer the U-6 rate for a more thorough understanding of business cycles and the underlying health of the labor market, as it accounts for hidden unemployment and underemployment that the U-3 rate omits.

FAQs

Why is the U-6 rate called the "actual" or "real" unemployment rate?

The U-6 rate is often referred to as the "actual" or "real" unemployment rate because it includes categories of individuals who are not captured by the official U-3 rate but still represent a significant portion of underutilized labor. This includes people who want to work but have stopped looking (discouraged workers) and those working part-time involuntarily because they cannot find full-time employment.

Who calculates and publishes the U-6 unemployment rate?

The U-6 unemployment rate, along with other alternative measures of labor underutilization, is calculated and published monthly by the U.S. Bureau of Labor Statistics (BLS), an agency of the U.S. Department of Labor.² The data is released as part of their Employment Situation Summary.

How does the U-6 rate differ from other U-measures (U-1, U-2, U-4, U-5)?

The BLS publishes six measures of labor underutilization (U-1 to U-6), each progressively broader in scope. U-1 focuses on long-term unemployment (15 weeks or longer), while U-2 looks at job losers and those who completed temporary jobs. U-3 is the official rate. U-4 adds discouraged workers to U-3. U-5 includes U-4 plus all other marginally attached workers. U-6 is the broadest, encompassing U-5 plus all people employed part-time for economic reasons.¹

Can the U-6 rate influence investment decisions?

Yes, the U-6 rate can influence investment decisions. A high or rising U-6 rate, even with a low U-3, might signal underlying economic weakness, potentially leading investors to adjust their portfolios. For instance, it could suggest weaker consumer demand or slower corporate earnings growth, impacting sectors like retail or consumer discretionary goods. Conversely, a declining U-6 rate can signal improving economic conditions and a tightening labor market, which might be positive for certain investments.