What Is the Unemployment Rate? Rates by State

What Is the Unemployment Rate?

The unemployment rate is the percentage of the labor force without a job. It is a lagging indicator, meaning that it generally rises or falls in the wake of changing economic conditions, rather than anticipating them. When the economy is in poor shape and jobs are scarce, the unemployment rate can be expected to rise. When the economy grows at a healthy rate and jobs are relatively plentiful, it can be expected to fall.

Understanding the Unemployment Rate

The U.S. unemployment rate is released on the first Friday of every month (with a few exceptions) for the preceding month. The current and past editions of the report are available on the website of the Bureau of Labor Statistics (BLS). Users can generate and download tables showing any of the labor market measures named above for a specified date range.

In the U.S., the official and the most commonly cited national unemployment rate is the U-3, which the BLS releases as part of its monthly employment situation report. It defines unemployed people as those who are willing and available to work and who have actively sought work within the past four weeks.

According to the BLS, those with temporary, part-time, or full-time jobs are considered employed, as are those who perform at least 15 hours of unpaid work for a family business or farm. The unemployment rate is seasonally adjusted to account for predictable variations, such as extra hiring during the holidays. The BLS also provides the unadjusted rate.

U-3 vs. U-6 Unemployment

Many people who want to work but cannot (due to a disability, for example) or became discouraged after looking for work without success are not considered unemployed under this definition; since they are not employed either, they are categorized as outside the labor force.

Critics see this approach as painting an unjustifiably rosy picture of the labor force. U-3 is also criticized for making no distinction between those in temporary, part-time, and full-time jobs, even in cases where part-time or temporary workers would rather work full-time but cannot due to labor market conditions.

How the Unemployment Rate Affects the Economy

Unemployment is one of the most closely-watched indicators for economic health, along with gross domestic product (GDP) and the consumer price index (CPI). The unemployment rate has an inverse relationship with the stock market and inflation, two key metrics for the overall health of the economy.

A low unemployment rate tends to be associated with an increased average wage, due to the reduced labor supply. In some instances, this can result in inflation, as employers raise prices to account for increased labor costs. Low unemployment also tends to be accompanied by increased stock prices, because the workforce has more disposable income.

Alternative Measures of Unemployment

In response to concerns that the official rate does not fully convey the health of the labor market, the BLS publishes five alternative measures: U-1, U-2, U-4, U-5, and U-6. Though these are often referred to as unemployment rates (U-6, in particular, is often called the real unemployment rate), U-3 is technically the only official unemployment rate. The others are measures of labor underutilization. 

U-1

The U-1 unemployment rate consists of those unemployed for 15 weeks or more as a percent of the civilian labor force. The U-1 unemployment rate as of March 2024, was 1.3%.

$\begin{aligned}U-1=\bigg(\frac{\text{Unemployed for 15 weeks+}}{\text{Labor Force}}\bigg)\times 100\end{aligned}$U−1=(Labor ForceUnemployed for 15 weeks+​)×100​

U-2

Those who lost jobs and completed temporary jobs as a percent of the civilian labor force account for the U-2 unemployment rate. This rate for March 2024 was 1.8%.

$\begin{aligned}U-2=\bigg[\frac{\text{Lost Jobs}+\text{Completed Temp Jobs}}{\text{Labor Force}}\bigg]\times 100\end{aligned}$U−2=[Labor ForceLost Jobs+Completed Temp Jobs​]×100​

U-4

Unemployed people, plus discouraged workers, as a percent of the labor force (plus discouraged workers) make up the U-4 unemployment rate, which was 4.0% as of March 2024.

$\begin{aligned} U-4=\frac{\text{Unemployed}+\text{Discouraged Workers}}{\text{Labor Force}+\text{Discouraged Workers}}\times 100\end{aligned}$U−4=Labor Force+Discouraged WorkersUnemployed+Discouraged Workers​×100​

Discouraged workers are those who are available to work and would like a job, but gave up actively looking for one. This category includes people who feel they lack the necessary qualifications or education, who believe there is no work available in their field, or who feel they are too young or old to find work.

Those who feel unable to find work due to discrimination also fall under this category. Note that the denominator—normally the labor force—is adjusted to include discouraged workers, who are not technically part of the labor force.

U-5

Unemployed people, discouraged workers, plus those marginally attached to the labor force, as a percent of the labor force (plus the marginally attached), make up the U-5 rate. The U-5 rate for March 2024, was 4.7%.

$\begin{aligned}U-5=\frac{\text{Unemployed}+\text{Marginally Attached}}{\text{Labor Force}+\text{Marginally Attached}}\times100\end{aligned}$U−5=Labor Force+Marginally AttachedUnemployed+Marginally Attached​×100​

People marginally attached to the labor force include discouraged workers and anyone else who would like a job and has looked for one in the past 12 months but actively gave up searching. As with U-5, the denominator is expanded to include the marginally attached, who are not technically part of the labor force.

U-6

Unemployed people, plus people who are marginally attached to the labor force, plus those who are employed part-time for economic reasons, as a percentage of the labor force (plus marginally attached). The rate for March 2024, was 7.3%.

$\begin{aligned} &U-6=\frac{\text{Unemployed}+\text{MA}+\text{PTER}}{\text{Labor Force}+\text{MA}}\times 100\\&\textbf{where:}\\&\text{MA}=\text{Marginally attached}\\&\text{PTER}=\text{Part-time for economic reasons}\end{aligned}$​U−6=Labor Force+MAUnemployed+MA+PTER​×100where:MA=Marginally attachedPTER=Part-time for economic reasons​

This metric is the BLS's most comprehensive. In addition to the categories included in U-5, it accounts for people who have been forced to settle for part-time work even though they want to work full-time. This category is often referred to as underemployed, although that label arguably includes full-time workers who are overqualified for their jobs. The denominator for this ratio is the same as in U-5.

Collection of Unemployment Data

Official U.S. employment statistics are produced by the BLS, an agency within the Department of Labor (DOL). Every month the Census Bureau, part of the Department of Commerce (DOC), conducts the Current Population Survey (CPS) using a sample of approximately 60,000 households, or about 110,000 individuals.

The survey collects data on individuals in these households by race, ethnicity, age, veteran status, and gender (but only allowing for categories of men or women), all of which—along with geography—add nuance to the employment data. The sample is rotated so that 75% of the households remain constant from month to month and 50% from year to year. Interviews are conducted in person or by phone.

The survey excludes individuals under the age of 16 and those who are in the Armed Forces (hence references to the civilian labor force). People in correctional facilities, mental health care facilities, and similar institutions are also excluded.

Interviewers ask a series of questions that determine employment status but do not ask whether respondents are employed or unemployed. Nor do the interviewers themselves assign employment status; they record the answers for the BLS to analyze.

Interviewers also collect information on industries, occupations, average earnings, and union membership. For those who are jobless, interviewers also ask whether they quit or were discharged (fired or laid off).

Unemployment Rate and COVID-19

In response to pandemic-related closures or business cutbacks, unemployment in the United States achieved historic records. In May 2020, 49.8 million individuals reported they had been unable to work at some point in the prior four weeks because their employer closed or lost business due to the pandemic. The unemployment rate increased from 4.4% in March 2020 to 14.8% in April 2020, achieving levels not seen since the 1930s.

The impacts of COVID-19 were experienced across the nation, as every state in the United States experienced a higher unemployment rate than what was recorded during the Great Recession; however, unemployment rates disproportionately impacted different sectors:

• Financial Activities: The unemployment rate in May 2020 was 5.7%, while the unemployment rate in July 2021 improved to 3.0%.
• Leisure and Hospitality: The unemployment rate in April 2020 was 39.3%, while the unemployment rate in July 2021 improved to 9.0%.
• Wholesale and Retail: The unemployment rate in April 2020 was 17.1%, while the unemployment rate in July 2021 improved to 6.0%.

The Bottom Line

In assessing an economy's health, the nation's unemployment rate plays a major factor in setting monetary policy and making strategic economic decisions. Though there are various ways to calculate unemployment, the general public is most familiar with the U-3 rate. The calculation for this iteration of the unemployment rate is to divide the number of unemployed individuals by the total workforce.