The U.S. Bureau of Labor Statistics (BLS) uses the “U3” as its standard unemployment rate, which does not include “hidden unemployment” in the calculation.
Wikipedia states: In many countries only those who have no work but are actively looking for work (and/or qualifying for social security benefits) are counted as unemployed. Those who have given up looking for work (and sometimes those who are on Government “retraining” programs) are not officially counted among the unemployed, even though they are not employed.
The BLS revised the Current Population Survey in 1994, and among the changes made was the measure representing the official unemployment rate. It was renamed U3 instead of U5. In 2013, Representative Duncan Hunter proposed that the Bureau of Labor Statistics go back to the U5 rate instead of the current U3 rate.
In other words, in 1994, the U.S made the rather odd and “cheap” decision to “lower” the unemployment rate simply by changing the definition of unemployment and changing the statistical measurement.
In 1994, the unemployment rate did not go down – the government simply changed the definition of unemployment.
The below statistics are for August 2014 from the U.S. Department of Labor website:
U-3 Total unemployed, as a percent of the civilian labor force (official unemployment rate): 6.3%
U-4 Total unemployed plus discouraged workers, as a percent of the civilian labor force plus discouraged workers: 6.7%
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: 7.5%
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 labor force: 12.0%
By a 1994 definition, unemployment today would be 7.5% instead of 6.3%. That’s because in 1994 the BLS changed the standard unemployment rate to U3 instead of U5. U3 is the unemployment rate given to the media. The U6 would be even higher.
In 2009, America’s U-6 unemployment rate was 17.4%.
A “discouraged worker” is a person of legal employment age who is not actively seeking employment or who does not find employment after long-term unemployment. Wikipedia states: “…even if a person is still looking actively for a job, that person may have fallen out of the core statistics of unemployment rate after long-term unemployment. and is therefore by default classified as “discouraged.”
The BLS defines “marginally attached workers” as “Persons not in the labor force who want and are available for work, and who have looked for a job sometime in the prior 12 months (or since the end of their last job if they held one within the past 12 months), but were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey. Discouraged workers are a subset of the marginally attached.”
“Marginally attached workers” (and “discouraged workers”) are, in fact, unemployed, but are not counted in the statistics.
Though there is very little on the internet about it, there is evidence that some economies (such as Germany) DO include hidden unemployment in their standard unemployment statistics, rendering comparisons between the U.S. and other nations useless.
So, a more accurate assessment of America’s true unemployment would be the U5 or U6 rate.