Note: The Current U-6 unemployment rate has moved.
What is U-6 Unemployment?
You would think that defining unemployment would be easy. If you don’t have a job you are unemployed… right? But what about retired people? Or people who don’t want a job? What about people who would like a job, but have given up looking because they don’t think there are any jobs available? What about people who only work a couple of hours a week because their hours were cut, but would really rather work full-time? These considerations have caused the U.S. Bureau of Labor Statistics (BLS) to come up with six different measures of unemployment, classified as U1 through U6. U3 is the generally accepted and commonly quoted “Unemployment Rate”. So What Is U-6 Unemployment?
“U” Classifications of Unemployment U1 through U6
U-1 is the narrowest definition of unemployment and U-6 is the broadest measure of unemployment. U-6 includes all classes of Unemployed even those considered “marginally attached” and/or part-time for economic reasons. In other words, those who would like a full-time job but can only find part-time work. Or perhaps they were working a full-time job and their employer cut their hours rather than actually laying off employees.
Many people consider U-6 the “REAL” unemployment rate… although the Bureau of Labor Statistics gives that honor to U-3.
According to the BLS, persons marginally attached to the labor force are those who currently are neither working nor looking for work but indicate that they want and are available for a job and have looked for work sometime in the past 12 months. Discouraged workers, a subset of the marginally attached, have given a job-market related reason for not currently looking for work (in other words they want a job but don’t think there are any available so they don’t even look). Persons employed part-time for economic reasons are those who want and are available for full-time work but have had to settle for a part-time schedule.
Note that from October to November the U-3 unemployment rate fell from 7.5% to 7.4% but the U-6 rate was flat at 13.9% possibly indicating more part time workers (thus dropping the U-3 rate but not the U-6 since they would prefer to be working full time).
The Bureau of Labor Statistics also calculates Unemployment rates in “Seasonally Adjusted” and “Non-Seasonally Adjusted” versions. To see how they compare see How Does the Unadjusted Unemployment Rate Compare to the Seasonally Adjusted Unemployment Rate?
The six classifications of unemployment that the Bureau of Labor Statistics tracks are:
U1 is Percentage of labor force unemployed 15 weeks or longer.
U2 is Percentage of labor force who lost jobs or completed temporary work.
U3 is Official unemployment rate per the International Labor Organization definition. It occurs when people are without jobs and they have actively looked for work within the past four weeks.
U4 is U3 + “discouraged workers”, or those who have stopped looking for work because current economic conditions make them believe that no work is available for them.
U5 is U4 + other “marginally attached workers”, or “loosely attached workers”, or those who “would like” and are able to work, but have not looked for work recently.
U6 is U5 + Part time workers who want to work full-time, but cannot due to economic reasons, i.e. the economy is bad so their employer cut their hours and they can’t find other work.
Data Tables are available from the U.S. Bureau of Labor Statistics for U1 – U6.
Is U-6 “the Real Unemployment Rate”?
The U-6 is the broadest measure of unemployment including those who have given up looking for work and those who are working part-time but would prefer to work full-time. Many people consider U-6 the “REAL” unemployment rate… although the Bureau of Labor Statistics gives that honor to U-3 and thus the Seasonally Adjusted U-3 is the commonly quoted “unemployment rate” in the media. See: What is the Real Unemployment Rate?, Current U-6 unemployment rate
As you can see from the chart below the unadjusted U6 was 15.2% in December 2011, it bottomed at 14.1% in April 2012 but by July it bounced up again to 15.2% for a net loss of 1.1% from April through July. In October the U-6 fell back to 13.9% but then rose back up to 15.4% in January 2013 before dropping to the current 13.4%.
Lack of Incentive
Short-term, there are no economic incentives to get a job. As a matter of fact with the extension of unemployment benefits there are many disincentives to getting a job. For example: During the worst of the recession, Michigan had the 6th highest unemployment rate in the country (see Unemployment Rates by State) but according to an article in the Detroit News, landscaping companies in Michigan couldn’t find employees, because job applicants weren’t really interested in working (they applied but refuse the job if offered).
According to the Michigan Department of Labor, the average landscape worker earns $12 an hour (considerably better than minimum wage). So a full-time landscaper makes about $225 more per week than if he collected unemployment. Sounds good until you factor in federal and state taxes. After taxes a full-time landscaper only nets about $95 more than sitting home doing nothing. And that doesn’t include money for gas, lunch, and any other expenses. So, in other words… The more generous the unemployment benefits, the less incentive to actually go out and work, Duh. Which may be a major factor in why the unemployment rate remains so high… it doesn’t pay to go to work. So the extension of the unemployment benefits may actually have extended the length of the recession and that doesn’t take into consideration the people who collect unemployment and then work “off-the-books” who might actually make more being unemployed than if they were employed.
Comparing U3 to U6
If you look at the chart below carefully you will see that the final U-3 unemployment rate is 7.1% and significantly above the U-3 rate from 2006-2008. But it has just dropped below the U-6 unemployment rate of 2007 and still above the U-6 rate during the 1999 -2001 period when U-6 bottomed at 6.3%. The following chart is a comparison of the Official Unemployment Rate U-3 to the broader U-6 Unemployment rate. We can see that U-6 is always higher than the often quoted U-3 “Unemployment Rate”.
Click for larger Image
You may also notice that when unemployment rises the gap between U-3 and U-6 also rises. For instance, in October 2000, unemployment was at the lowest levels on this chart with U-3 at 3.6% and U-6 was at 6.3%. For a difference of only 2.7%. But at the peak of unemployment in January 2010 U-3 was at 10.6% but U-6 shot all the way up to 18% for a difference of 7.4%. Logically, this makes sense because as times get worse, more people give up looking for jobs. When times are good and jobs are plentiful anyone who really wants a job can get one.
The following chart is the difference between U6 and U3. Simply U6 minus U3 when it is low the economy is nearing full employment i.e. when everyone who really wants a job can find one.
Click for larger Image
But this leads us back to the question… Why do we have a U-3 number at all? Aren’t all U-6 people unemployed? But during bad times like the recent few years it is scary to hear the Unemployment rate is 18% (U-6) but less scary if the number you hear is “only” 10.6% (U-3) so the government prefers the U-3 number and unfortunately the news media plays along and uses the U-3 number because it is the “Official” unemployment rate.
For the current U-3 vs. U6 chart see Current U-6 unemployment rate also see Is the Government Fudging Unemployment Numbers? for the comparison of Gallup numbers vs. Bureau of Labor Statistics numbers.
Unemployment Rate Chart – The seasonally adjusted unemployment rate from 1948 to the present is one of the most watched statistics. Where is it now and should you trust it?
Current Employment Data – How many jobs are there actually? This chart shows Employment since Jan 2000 and what the current trend is.
Historical Employment Data Chart- How Many People Are Actually Employed? This chart shows the actual employment rate without all the mumbo jumbo. It gives a clear picture of the employment level in the United States from 1939 to the Present. When employment is rising the ecomomy is growing. When the employment rate levels off or declines times are not so good. Take a look and see how employment rates correspond to recessions over time.
Misery Index- Created by economist Arthur Okun to help gauge the level of misery the average person is suffering. It is a combination of the inflation rate and the unemployment rate.
What is the True Unemployment Rate? - Is the Government Fudging the numbers?
What is the Real Unemployment Rate? – Should discouraged workers be counted?
Source: U.S. Bureau of Labor Statistics- U-6 Unemployment Rate