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Alternative Measures of Unemployment

Minnesota's official unemployment rate is a useful indicator of the health of the state’s economy, but it doesn’t tell the whole story. We can get a more complete picture of Minnesota's labor market by looking at alternative measures of unemployment, and by breaking down the rates by age, gender, and race. The numbers below come from the Current Population Survey. Please note that all data below are presented as averages over the past 12 month, and thus do not fully reflect monthly trends.

Broad Unemployment and Underemployment

The Bureau of Labor Statistics has developed six alternative definitions of unemployment and underemployment, labeled U-1 through U-6. The official unemployment measure, called U-3, is the share of those aged 16 and over who, at the time of the monthly survey, were not employed in the past week and who have looked for work sometime in the past four weeks. Importantly, this excludes anyone who was not seeking work in the past month for any reason. This group is considered “not in the labor force.” In September, the official unemployment remained stable at 3.2 percent, and was 0.3 percentage point higher compared to 12 months ago. Note that the U-3 number reported in this analysis may differ slightly from the official state unemployment estimate, because the official rate is calculated using a different method by the LAUS program. The number reported here is directly comparable to the other rates in this analysis.

What about people who want a job, but aren’t actively searching because they think there are no jobs available that fit their qualifications? These “discouraged workers” are considered to be out of the labor force, but they reveal additional untapped potential in the labor market. People who have looked for work in the past year, but stopped looking for the past month because they think they cannot find a job are included in a broader measure of unemployment called U-4. This rate tends to closely follow the U-3 rate, and decreased to 3.2 percent in September from 3.3 percent in August, and was 0.3 percentage points higher compared to 12 months ago.

What if we add all the other “marginally attached” workers, people who looked for work sometime in the past twelve months but, for other reasons, did not look in the past four weeks? These marginally attached workers increase the count of unemployed still further in the U-5 measure. In September, the U-5 decreased to 3.7 percent from 3.8 percent in August, with an over-the-year increase of 0.5 percentage points.

The broadest measure of unemployment is U-6, which includes all of the above and adds people who are employed part-time but want full-time work. In September, the U-6 remained stable at 5.9 percent. The U-6 was 0.5 percentage points higher than what it was 12 months ago.

The chart below shows that all of the alternative measures of unemployment are down from one year ago and one month ago.

Alternative unemployment rates in Minnesota as of September 2019:

Measure*

September – 19

August -19

September -18

Monthly Change

Annual Change

U-3

3.2

3.2

2.9

0.0

+0.3

U-4

3.2

3.3

2.9

-0.1

+0.3

U-5

3.7

3.8

3.2

-0.1

+0.5

U-6

5.9

5.9

5.4

0.0

+0.5

*Definitions of Measures:

U-3 Official unemployment rate

U-4 Discouraged plus officially unemployed

U-5 All marginally attached (including discouraged) plus officially unemployed

U-6 Involuntary part time plus marginally attached, discouraged, and officially unemployed

Involuntary part time covers persons working less than 35 hours per week who want, but cannot find, a full-time job.


graph- Minnesota Unemployment and Underemployment

The long-term unemployed

Long-term unemployment—lasting more than 26 weeks (six months)—imposes costs on people that go well beyond lost wages. Future earnings are lower, and health, relationships, and self-esteem can suffer. It is important to note that the percentage of long-term unemployed persons represents a share of unemployed persons only, while other unemployment rates represent a share of the entire labor force, which includes all persons age 16 or older who are working or looking for work.

In September, the number of long-term unemployed increased since August by 600 to 10,100 (this number was 9,500 in August), and was 2,000 lower than twelve months back. The share of long-term unemployed entered double digit for the first time since February, settling at 10.2 percent in September compared to 9.6 percent in August. This share was 3.6 percentage points lower than twelve months back.

Long-term unemployment in Minnesota as of September 2019:

Measure*

September – 19

August -19

September -18

Monthly Change

Annual Change

Number Long-Term

10,100

9,500

12,100

+600

-2,000

Share Long-Term

10.2

9.6

13.8

+0.6

-3.6

*Long term is defined as more than 26 weeks. The share of long term is expressed as a percentage of all unemployed (U-3).


graph- Minnesota Long-Term Unemployed (more than six months)


Unemployment by age and gender

We can often find interesting differences when we break out unemployment rates by age and gender. Teen unemployment decreased to 8.0 percent in September, down from 9.0 percent in August. Over the year, teen unemployment was higher by 2.1 percentage points.

The unemployment rate for men remained stable at 4.0 percent, but was 0.7 percentage points higher compared to twelve months back. The unemployment rate for women increased slightly to 2.4 percent, up from 2.3 percent in August, and was unchanged from a year back.

Unemployment rates by age and gender in Minnesota as of September 2019:

Group

September – 19

August -19

September -18

Monthly Change

Annual Change

Teenagers

8.0

9.0

5.9

-1.0

+2.1

Women

2.4

2.3

2.4

+0.1

0.0

Men

4.0

4.0

3.3

0.0

+0.7


graph-Minnesota Unemployment by Age and Gender


Unemployment by race or ethnicity

When we break out unemployment rates by race, we find that Black unemployment rate decreased to 6.6 percent in September (6.8 percent in August), for a 1.4 percentage point increase over-the-year. The Hispanic unemployment rate remained stable, and was 2.3 percentage points lower than twelve months back. White unemployment remained stable at 2.8 percent, and was 0.3 percentage point higher than twelve months back. It should be noted that due to relatively small sample sizes, the calculated unemployment rates for Black and Hispanic individuals are more susceptible to random measurement error.

Also see the American Community Survey for a broader selection of unemployment data by race or origin, including White, Black or African American, Hispanic or Latino, American Indian and Alaskan Native, Asian, and more. Population profiles for all available races are available for download below. Note that the American Community Survey data are collected and calculated by a method which differs from the Current Population Survey numbers shown in this report. American Community Survey 1-year Population Profiles for All Available Races in Minnesota can be found for the year 2018 at this link, and for years 2014, 2015, 2016, and 2017 at this link. Information on the native-born and foreign-born populations for 2018 can be found at this link and for previous years can be found here.

Unemployment rates by race or ethnicity in Minnesota as of September 2019:

Group

September – 19

August -19

September -18

Monthly Change

Annual Change

Black

6.6

6.8

5.2

-0.2

+1.4

White

2.8

2.8

2.5

0.0

+0.3

Hispanic

3.0

3.2

5.3

-0.2

-2.3


Graph- Minnesota Unemployment by Selected Race or Ethnicity


Looking ahead

Generally low and stable unemployment and underemployment mean that Minnesota’s economy is running very close to its full potential. The differences seen when breaking the numbers out by racial groups show that there is still room for improvement in Minnesota’s employment situation.

Notes on using Current Population Survey state data: Data above are presented as 12-month moving averages. Each monthly data point is an average of that month and the previous 11 months. Twelve-month moving averages are calculated differently than the official estimates of unemployment and should not be compared directly. Learn more about using CPS subnational data at https://www.bls.gov/cps/cps_htgm.pdf

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