U-6 (Unemployment) Rate

Published Oct 26, 2023

Definition of U-6 (Unemployment) Rate

The U-6 rate, also known as the underemployment rate, is a broader measure of unemployment that includes not only people who are unemployed and actively looking for work but also those who are working part-time but want to work full-time or have given up on finding a job. The U-6 rate is considered a more comprehensive indicator of the true level of labor market slack and underutilization.

Example

To understand the U-6 rate, let’s consider a hypothetical scenario. Imagine a country where the official unemployment rate is 5%. However, upon further analysis, it is discovered that there is a significant number of people who are working part-time but would like to work full-time. Additionally, there are individuals who have given up on finding a job altogether due to discouragement.

If we include these underemployed and discouraged workers in the calculation, the U-6 rate may be much higher than the official unemployment rate. In this scenario, let’s assume there are 2% of workers who are part-time but would prefer full-time employment, and 3% of individuals who have given up on finding a job. In this case, the U-6 rate would be 10% (5% official unemployment, 2% underemployed, 3% discouraged).

This example demonstrates how the U-6 rate provides a more accurate representation of the extent of labor market challenges faced by individuals, compared to the official unemployment rate alone.

Why U-6 (Unemployment) Rate Matters

The U-6 rate provides policymakers and economists with a more comprehensive understanding of the state of the labor market. By considering not only those officially unemployed but also those who are underemployed or have given up on finding a job, the U-6 rate can reveal hidden unemployment and the degree of labor market underutilization.

Understanding the U-6 rate is crucial for formulating effective policy responses to address labor market challenges. It helps policymakers assess the need for measures such as job training programs, economic stimulus, or interventions to promote full-time employment opportunities.

Additionally, the U-6 rate is vital for gauging the overall health and stability of an economy. High levels of underemployment and discouraged workers indicate potential inefficiencies and imbalances within the labor market, suggesting a need for structural reforms or policy adjustments to create more sustainable and inclusive employment opportunities.