What measure of unemployment is used by central banks to find out whether the rate of unemployment is below the natural rate of unemployment? Having an unemployment rate below the natural rate of unemployment (NRU) leads to wage inflation and a reduction in productivity. Seeing the consequences of that, and knowing that one of the roles of a central bank is to control unemployment and inflation, central banks must accurately determine what the unemployment is currently at and see whether it is above or below the NRU.
I ask this because after looking at the Bureau of Labor Statistics' data on U-3 and U-6 (seasonally-adjusted) between the years 2010 and 2020, the lowest U-3 got was 3.5% in 2019Q4, whereas U-6 was 6.5%. However, the NRU in 2019Q4 4.45%
So, what measurement is used by central banks and what would be the best way to measure unemployment so that it can best be compared to the NRU?
The phrase “natural rate of unemployment” has been largely replaced by NAIRU or similar concepts. Each country has its own definition of the unemployment rate, the U.S. “headline” measure is U-3.
Nobody has created an estimate for NAIRU that is based on a function of other variables, instead it is estimated based on the behaviour of the economy and the chosen unemployment rate measure. This implies that a NAIRU estimate is defined relative to the unemployment rate used in the estimation procedure. In the United States, most researchers would run their estimation versus U-3, but one might need to validate this.