The official unemployment rate calculated by the Bureau of Labor Statistics (BLS), also known as U-3 unemployment, captures those who have been without work and have been looking for at least four weeks. The BLS measurements for unemployment are as follows:
- U-1: Persons unemployed 15 weeks or longer, as a percent of the civilian labor force
- U-2: Job losers and persons who completed temporary jobs, as a percent of the civilian labor force
- U-3: Total unemployed, as a percent of the civilian labor force
- U-4: Total unemployed plus discouraged workers, as a percent of the civilian labor force plus discouraged workers
- U-5: Total unemployed, plus discouraged workers, plus all other persons marginally attached to the labor force, as a percent of the civilian labor force plus all persons marginally attached to the labor force
- U-6: Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the the labor force
If we want to play semantics, the U-6 indicator is technically an underemployment measurement. I'm not a fan of people using the U-6 indicator in attempts to perpetuate the myth of part-time America. Nevertheless, the U-6 unemployment rate depicts a more accurate picture of the strength of the labor market than the U-3 unemployment rate, much like the employment-population ratio and the labor force participation rate help us do.
Even if we were to use U-6 rate, there are still two issues with using the national unemployment rate: 1) the rates require substantial estimation and readjustments, and 2) there is no such thing as a national unemployment rate because the rates vary so much from state to state.
So the next time you see the "unofficial unemployment rate" decrease, don't think to yourself "Look at that, the economy is getting better." Instead, think to yourself, "Big whoop-de-doo! Tell me when you have actual news to report."