The Unemployment Rate and How It's Measured

The national unemployment rate is the percentage of people in the labor force that is unemployed. It is a key indicator of how a country’s labor market is performing. The unemployment rate is a lagging indicator. This means that it is dependent on changes in the variables and economic conditions that affect it. However, the unemployment rate generally rises when the economy is not doing well and falls when the economy is healthy, allowing for an abundance of jobs.

In the United States, the most frequently referenced national unemployment rate is the U-3. As part of the report it releases every month on the state of the country's employment, the Bureau of Labor Statistics (BLS) publishes the U-3. According to the U-3, unemployed individuals are people who want to and are available to work. The rate also regards people who have actively searched for employment in the past four weeks as unemployed individuals.

As seen in research by Investopedia, people with full-time, temporary, or part-time jobs are deemed employed. Individuals who undertake at least 15 hours of family work without remuneration are also considered employed. Seasonal adjustments are made to the unemployment rate to accommodate foreseeable fluctuations like increased hiring around the holidays. When the rate is adjusted, the BLS makes note of this in its report.

The U-3 is not the only unemployment indicator available, and it presents a rather restrictive measurement of unemployment. The U-6 rate, popularly referred to as the “actual” unemployment rate, is more comprehensive. The U-6 measurement incorporates groups such as underemployed people working part-time jobs because full-time jobs are unavailable, and disappointed people who looked for a new job until they got discouraged and quit looking. It provides an alternative means of calculating the unemployment rate.

The U-3 unemployment rate is calculated by dividing the number of unemployed individuals by the total labor force, which includes both employed and unemployed individuals. Many persons who wish to work but cannot do so due to issues like disability are not deemed unemployed under the U-3 measurement. The same goes for people who have given up looking after seeking employment unsuccessfully. Rather, they are classified as non-members of the labor force.

According to critics, this technique wrongly paints the workforce in a rosy light. Additionally, critics have attacked the U-3 system for putting full-time, part-time, and temporary workers in the same bracket, even when temporary and part-time workers would prefer to do full-time jobs but are restrained by labor market conditions.

Apart from the U-6, there are other alternatives to the U-3 rate. They are the U-1, U-2, U-4, and U-5. Each of these rates is published by the BLS in response to the shortcomings of the U-3. U-1 represents individuals who have been without employment for 15 or more weeks. U-2 represents persons who lost their employment or whose temporary jobs have run their course. U-4 accounts for jobless people, plus workers who got discouraged after seeking employment without success. And finally, U-5 takes into account unemployed people plus individuals marginally attached to the workforce. The Bureau of Labor Statistics publishes these statistics every month by conducting a Current Population Survey, which involves collecting information from 110,000 individuals and 60,000 families.