U3 Unemployment Rate

The U-3 unemployment rate, or simply the U3 rate, is the most commonly reported unemployment rate in the United States that represents the number of people actively seeking a job. Along with economic growth rate and inflation rate, it is one of the most widely reported and discussed economic indicators. It is measured by the Bureau of Labor Statistics which contacts 60,000 randomly selected households to report the unemployment status of each person 16 years old or older. U3 is often criticized for being too simple, with many economists leaning on the U-6 rate as the more meaningful rate as it covers a larger percentage of people, taking the whole picture into account.

  • Tends to track the natural growth of GDP during positive business cycles
  • Tracks the natural growth/contraction of the business cycle
  • Recessions Usually form when the rate drops below 4%
    • This happened after 1960s and 1990s expansions

U3 Unemployment Rate Criticisms

  • The U3 rate does not include those who are not participating in the labor market
    • A more accurate rate would look at total person hours available & worked
    • For Example, the labor force participation rate dropped from 67% i the 1990s to 62.7% in 2018
  • The metric counts different quality jobs the same
    • A 10 hour per week  side job is counted similarly to a 50+ hour job with full benefits
  • Also incorporates assumptions and adjustments that may be inaccurate
    • Ex.  In 2008-2009 jobs were overestimated by 500k because a previous trend was assumed to continue (when in reality it had reversed)