The Economic Pain That the Unemployment Rate Leaves Out

The Department of Labor announced Friday that with a “limited resumption of economic activity,” 13.3 percent of Americans were unemployed in May. Though still high by historical standards, that’s down from 14.7 percent in April, and a pleasant surprise to many economists, who were expecting a figure closer to 20 percent.

But this statistic doesn’t tell the whole unemployment story. That is true even in ordinary times, and more so in view of the pandemic’s effect on the labor market, which has made this figure particularly incomplete as a measure of economic hardship.

“The unemployment rate itself is significantly going to understate the drop in economic activity,” said Stephanie Aaronson, the director of economic studies at the Brookings Institution. “It also is underestimating the amount of distress that Americans are facing right now because it understates how many people have lost jobs.”

Here’s what the unemployment rate would look like if it were expanded to include more workers who have been hurt during the pandemic.

The headline unemployment rate is calculated by taking the number of unemployed adults divided by the total number of people in the labor force, employed and unemployed. (The rate shown here is not seasonally adjusted, which is why it’s slightly different from the headline Labor Department number.)

This rate includes 15 million workers who expect to be recalled back to their jobs, as well as those on permanent layoff, job leavers, new entrants and re-entrants to the labor force.

But there are millions of people who are not working and want a job that this rate leaves out. To be officially counted as unemployed, workers who are not on temporary layoff must indicate that they have looked for work in the past four weeks.

The Department of Labor releases an expanded unemployment rate called the U-6 that captures some of these workers, those considered “marginally attached” to the labor force because they have looked for a job in the past year. If we add those workers to our expanded unemployment rate, it increases to 14.2 percent.

But the pandemic is causing many people not to look for work because of fears about getting sick or responsibilities like caring for children. If we include all those people who say they want a job, regardless of their job hunt status, the rate increases to 17.9 percent.

The rate increases further if we include those who are working part time because their hours have been cut or they could not find full-time jobs (a group also included in the U-6 measure).

Finally, the Labor Department said that 4.9 million workers who were counted as employed but absent from work for “other reasons” were most likely miscategorized because they were on temporary layoff. Some of those workers are still being paid, but their absence contributes to the drop in economic activity.

Combining these groups results in a 27 percent expanded unemployment rate that more closely reflects the share of the labor force whose employment has been negatively affected by the pandemic.

These figures released Friday reflect the employment situation for May, specifically the week of May 10-16. A more recent data set released Thursday, initial claims for unemployment benefits, indicates that while job losses have slowed, layoffs continued last week even as businesses have begun to reopen.

But it’s hard to draw precise parallels between the two data sources, particularly because of the unique circumstances of the pandemic.

First of all, initial unemployment claims reflect only initial layoffs, not the net change in the number of people employed. Another unemployment insurance statistic, continuing claims, is a snapshot of the current number of people receiving benefits, but that data has a longer lag time and also does not reflect everyone who is unemployed.

That’s in part because not everyone who is unemployed applies for or is granted benefits. And some of those who do receive benefits would not necessarily be counted as unemployed, at least by the official measure.

For example, some workers who have had their hours significantly reduced but still remain employed are eligible for partial benefits. And many states waived the requirement that an unemployed person must actively look for work to receive benefits, which would technically put them outside the labor force and the official unemployment count.

To better understand the effects of the pandemic on workers, the Department of Labor added five new questions to its monthly household labor force survey in May. But the responses to the new questions have not yet been released.

A Monday report from the Congressional Budget Office estimated that fallout from the coronavirus crisis will shrink the size of the U.S. economy by roughly $8 trillion over the next decade. That amounts to a 3 percent decline in U.S. gross domestic product compared to its initial estimate.