What are the criticisms associated with the measurement of the unemployment rate?

EconomicsAP®︎/College MacroeconomicsEconomic indicators and the business cycleUnemployment

Lesson summary: Unemployment

In this lesson summary review and remind yourself of the key terms and calculations used in measuring unemployment, the labor force, the unemployment rate, the labor force participation rate, and the natural rate of unemployment. Topics include cyclical, seasonal, frictional, and structural unemployment.

Six alternative measures of labor underutilization have long been available on a monthly basis from the Current Population Survey (CPS) for the United States as a whole. They are published in the Bureau of Labor Statistics' monthly Employment Situation news release. (See table 15.) The official concept of unemployment (as measured in the CPS by U-3 in the U-1 to U-6 range of alternatives) includes all jobless persons who are available to take a job and have actively sought work in the past four weeks. This concept has been thoroughly reviewed and validated since the inception of the CPS in 1940. The other measures are provided to data users and analysts who want more narrowly (U-1 and U-2) or broadly (U-4 through U-6) defined measures.

BLS is committed to updating the alternative measures data for states on a 4-quarter moving-average basis. The use of 4-quarter averages increases the reliability of the CPS estimates, which are based on relatively small sample sizes at the state level, and eliminates seasonality. Due to the inclusion of lagged quarters, the state alternative measures may not fully reflect the current status of the labor market. The analysis that follows pertains to the fourth quarter of 2021 through the third quarter of 2022. Data are also available for prior time periods back to 2003.

The six state measures are based on the same definitions as those published for the United States:

• 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 (this is the definition used for the official unemployment rate);
• 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 marginally attached workers, as a percent of the civilian labor force plus all marginally attached workers; and
• U-6, total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers.

Definitions for the economic characteristics underlying the three broader measures of labor underutilization are worth mentioning here. Discouraged workers (U-4, U-5, and U-6 measures) are persons who are not in the labor force, want and are available for work, and had looked for a job sometime in the prior 12 months. They are not counted as unemployed because they had not searched for work in the prior 4 weeks, for the specific reason that they believed no jobs were available for them. The marginally attached (U-5 and U-6 measures) are a group that includes discouraged workers. The criteria for the marginally attached are the same as for discouraged workers, with the exception that any reason could have been cited for the lack of job search in the prior 4 weeks. Persons employed part time for economic reasons (U-6 measure) are those working less than 35 hours per week who want to work full time, are available to do so, and gave an economic reason (their hours had been cut back or they were unable to find a full-time job) for working part time. These individuals are sometimes referred to as involuntary part-time workers.

Generally, all six measures of labor underutilization move together over time, including across business cycles. Similarly, states that have low unemployment rates tend to have low values for the other five measures; the reverse is true for states with high unemployment rates. Note that, in the table and in the comparisons below, the unemployment rates (U-3) that are shown are derived directly from the CPS, because this is the only source of data for the various components of the other five measures. As a result, these U-3 measures may differ from the official state unemployment rates for the same period. The official rates are developed from statistical models that greatly improve the reliability of the topside labor force and unemployment estimates. Those models, developed by the Local Area Unemployment Statistics (LAUS) program, incorporate CPS estimates, as well as input data from other sources. The model-based estimates are accessible through the LAUS program homepage.

For additional information on state estimates derived directly from the CPS, see notes on subnational CPS data.

In the 4-quarter average period ending in September 2022, 15 states had rates lower than those of the U.S. for all six measures of labor underutilization, while 3 states had rates higher than those of the U.S. for all six measures. (See table A.)

The U-4 rate includes discouraged workers; thus, the difference between U-3 and U-4 reflects the degree of would-be job-seeker discouragement. At the national level, the difference between U-3 and U-4 was +0.2 percentage point through the four quarters ending in September 2022. No state had a noteworthy difference between these two measures. (See table B.)

The U-5 rate includes all people who are marginally attached to the labor force, and U-6 adds those who are involuntary part-time workers. Therefore, the larger the difference between U-5 and U-6, the higher the incidence of this form of "underemployment." For the four quarters ending in September 2022, 49 states and the District of Columbia had differences between their U-5 and U-6 rates. California had the largest gap, +3.6 percentage points, followed by Nevada, +3.4 points. At the national level, the difference between U-5 and U-6 was +2.4 percentage points.

Relative to the four quarters ending in September 2021, 43 states and the District of Columbia experienced decreases in all six measures of labor underutilization. All 50 states and the District had decreases in the U-1 measure. For the U-2 through U-6 measures, between 46 states and the District (U-6) and 49 states and the District (U-5) had declines over the year. No state experienced an over-the-year increase in any measure of labor underutilization. (See table C.)

Some states with extreme measures, either low or high, maintained their general place in the rankings of alternative measures over the year. Iowa, Nebraska, North Dakota, South Dakota, and Utah had rates among the 10 lowest for each measure in the four quarters ending September 2021 and those ending September 2022. Similarly, California, Connecticut, Nevada, and New York had rates among the 10 highest for each measure in both periods.

The alternative measures for states are analyzed on a 4-quarter average basis in order to increase the reliability of the CPS estimates, which are based on relatively small sample sizes at the state level, and to eliminate seasonality. Due to the small state sample sizes, neither monthly nor quarterly statewide data from the CPS satisfy BLS publication standards. The analysis above is written with respect to statistical significance testing at the 90-percent confidence level for rate differences with respect to the U.S. (table A), sequential gaps in rates (table B), and over-the-year changes in rates (table C).

The next issuance of the alternative measures of labor underutilization for states, pertaining to the 2022 annual averages, is scheduled for Friday, January 27, 2023.

Last Modified Date: October 28, 2022

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