Why does the government have 6 unemployment rates?
Why does the government have 6 unemployment rates?
When the March jobs report comes out in early April, Marketplace will note the new unemployment rate at the top of our newscasts. And we’ll be quoting what the Bureau of Labor Statistics describes as the official unemployment rate — identified as U-3 in the jargon of the agency’s statisticians.
The U-3 unemployment rate was 4.1% in February, up from 4% in January.
But buried in the monthly jobs report are five more unemployment rates, labeled U-1 through U-6. They measure various aspects of what the BLS calls labor underutilization. As of February, those rates ranged from 1.5% (U-1) all the way up to 8% (U-6).
Six rates to measure joblessness may seem like a lot. But they tell different stories about the labor market and whether it’s working for American households.
Take, for example, 25-year-old Aurora Azbill from Dayton, Ohio. She turned her passion for theater into a profession.
“I build costumes,” she said.
Azbill moved to New York City two years ago with a theater-tech degree and soon landed a job in a shop making costumes for movies, cruise ship theatricals and Broadway shows.
“While I had a 9 to 5, if Broadway is not doing any cast changes, nothing’s opening, hours get cut,” said Azbill. “I would walk in in the morning, my boss would be like, ‘Sorry girl. Like, we don’t have any work for you, you can go home. Maybe I’ll see you in two weeks.’”
When this happened, she’d try to find short-term freelance gigs to tide her over.
“You can’t really fall back on ‘Oh, well I’ll just file for unemployment,'” she said. “You’re constantly looking for work.”
So Azbill had a job, though she sometimes didn’t get any hours or a paycheck. She did temp jobs in her field, but that didn’t pay as consistently as her regular 9 to 5. And all the while, she would be aggressively looking for a new job.
So, would Azbill be counted in the monthly jobs report as “unemployed” or “underemployed”? It’s actually not an easy answer.
Victoria Gregory is a labor economist at the St. Louis Federal Reserve Bank. She said that each of the unemployment rates the Bureau of Labor Statistics publishes tries to get at a different slice of people who tell the monthly Current Population Survey that they want to work, but aren’t working, or at least, aren’t working as much as they want to.
“Going from narrowest to broadest,” Gregory explained, “U-1 is just capturing the long-term unemployed, people who have been unemployed for 15 weeks or longer.”
Gregory said this matters because the longer the duration of unemployment, the less likely a worker is to find another job soon.
The next category: U-2. “This starts to add in job losers because of a layoff or a firing or their temporary job ending. When you have a lot of those, it’s typically a bad sign for the labor market,” Gregory said.
This might be the unemployment category Azbill would have fallen under — a temporary layoff, or perhaps she would have been in the next one, U-3, when she gave up on the first job and started looking for a new one.
“U-3 is the official rate,” said Gregory. “It’s the simplest notion of unemployment. It just captures people who want a job and have actively been searching for one within the last four weeks.”
The “official” rate has its virtues, said Harvard economist Lawrence Katz. “The value of the headline number is that we’ve been collecting it the same way for, like, 80 years. It’s comparable over time. It’s comparable internationally.”
But, he continued: “It’s not everybody facing distress in the labor market.”
This has been a long-standing criticism — that the “official” rate is an undercount.
“It doesn’t count you if you’re so discouraged, you’re not doing something active to find work; if you work 10 hours a week but that’s not enough to support yourself and you really want to work full time,” Katz said.
BLS studied the issue, and in 1994 it revised its measures of unemployment. The U-4 rate added “discouraged workers” who say they want and are available to work, have looked in the past year but not the past four weeks, and give a job-market-related reason for not actively looking. U-5 adds all the “marginally attached,” who want and are available to work and have searched in the past year, but not the past four weeks.
The broadest measure, U-6, includes discouraged and other marginally attached workers, plus people who are employed “part-time for economic reasons,” also called underemployed or involuntary part-time workers.
And, as if six different unemployment rates aren’t enough, Lawrence Katz at Harvard daydreams about a seventh. “A more expanded measure in which you included people whose wages were sufficiently low that they couldn’t lift their household out of poverty.”
For now, though, BLS’ limit is six. Rebecca Dixon, president of the National Employment Law Project, follows the U-6 closely. “The U-6 rate bumped up in February to 8%. It was at 7.5% in January,” she said. “Seeing that increase is an example of the labor market slowing down.”
Economist Gary Hoover at Tulane University watches all the rates, but said he pays special attention to the broadest unemployment measures when tracking longer-term trends. He’s most concerned “about what’s happening with the marginally attached part of the workforce, on the periphery of the economy.”
Hoover said these are likely to be workers with the least education and experience, more likely to be women and minorities. They’re the last hired and first fired in a downturn.
For him, the U-6 is “the canary in the coal mine, the harbinger of things to come, and it’ll probably show up later on in the U-3.”
Back in New York City, Aurora Azbill has left the unemployment rolls entirely, for now.
After being laid off at the end of 2024, she started a new job in February. “I needed a little bit more stability,” she said. “I’ve recently accepted a full-time position in the drapery part of things. So instead of clothes, I’m working with big curtains.”
They always need mending or replacing, as long as there are shows playing at the opera, the ballet, on cruise ships and on Broadway.
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