Why Top Economists Are Citing a Higher-Than-Reported Jobless Rate
The official unemployment rate in America has fallen sharply after rising last year, but government business leaders are increasingly citing a different number – one that has the unemployment rate close to 10 percent, well above the official figure of 6.3 percent and roughly corresponds to the 2009 high.
This emphasis on alternative statistics, which is advocated by political leaders such as Federal Reserve Chairman Jerome H. Powell and Treasury Secretary Janet Yellen, underscores both the very unusual nature of the coronavirus shock and a long-term change in it How economists think about the weakness of the economy labor market.
The Bureau of Labor Statistics measures how many Americans are actively looking for work or temporarily firing in the middle of each month. This figure, viewed as the proportion of the civilian labor force, is reported as the official unemployment rate.
But economists have feared for years that if they rely on the headline they will ignore people they shouldn’t, including potential employees who are not actively applying for work because they are discouraged or waiting for the right opportunity. Consideration of a broader list of labor market measures – not just the unemployment rate – came to the fore after the 2007-2009 recession.
The current conversation goes one step further. Key policy makers are virtually dropping the headline unemployment rate as a reference point amid the pandemic, rather than downplaying its completeness. This underscores the unique challenges in measuring the coronavirus-affected labor market and suggests that policymakers will likely be reluctant to declare victory just because the labor market appears to have healed on the surface.
“We have an unemployment rate that, when measured correctly in a sense, is really close to 10 percent,” Ms. Yellen said Thursday on CNBC. A week earlier, Mr Powell quoted the same figure in a speech about ongoing labor market damage.
Mr Powell realized that he was adjusting the overall unemployment rate for one simple reason: a lot of people are being left out.
“The unemployment rates published in Covid have dramatically underestimated the deterioration in the labor market,” Powell said during the speech. People quit their jobs quickly when the economy closed and with many restaurants, bars and hotels closed, many workers trained in service work have nowhere to apply.
Enter the new, customized metric. To reach the 10 percent figure, the Fed economists add two large groups.
They include those who are classified as “employed but not employed” in the Ministry of Labor’s report but are actually dismissed temporarily. Then they add back people who have lost their jobs since last February and are not currently actively applying for jobs, officially counting them as outside the labor pool.
Apr. 22, 2021, 1:01 am ET
The second group is much larger and increases the unemployment rate by almost 3 percentage points.
“What they are trying to do with this unemployment rate is they say – look, we’re not there yet,” said Claudia Sahm, a former Fed economist who now writes columns for the New York Times. “It’s so encouraging to see that they can find a way to break it down into statistics that people understand.”
It is unclear whether all people who have left their jobs and are not currently looking for new ones will re-enter the labor market after the crisis is over, but the fact that policymakers so explicitly target them in measures to weaken the Including the labor market marks a subtle but important shift.
After the 2008 downturn, Ms. Yellen was the most prominent proponent of considering many measures in assessing the strength of the labor market. When she was the Fed’s vice chairman in 2013, she gave a speech in which she set out a dashboard of data points – including a broader measure often referred to as the “underemployment rate” – that she looked to to see if the labor market was going can really be considered strong.
But even as she highlighted a wide range of data points as vice chairwoman and later chairman of the Fed, headline unemployment remained the North Star for most economists. And while economists found that the proportion of the population either working or applying for a job had declined after the financial crisis, many did not expect the number to recover much.
American workers surprised them. As the economy grew steadily, people poured in from the sidelines. And thanks to that experience, this time could be different.
Business officials, including Mr Powell, add the total population of people who have left the job market since February to their number of “unemployed” rather than suggesting that some of these people may remain permanently unemployed.
Mr Powell sometimes admits that some people who are unemployed today may find it difficult to find new jobs easily if their cruise ship or casino jobs never return. In general, however, he focuses on ways to build a bridge for such people to find new careers – rather than adjusting Fed expectations to accept slightly higher levels of permanent unemployment, which is compatible with “full employment.” .
That could be important for interest rate policy. It was clear to Fed officials that they plan to keep policy rates at rock bottom – where they should prop up the economy – until labor market conditions match their “estimates of maximum employment” and inflation is at 2 percent and on the right track is to surpass them at some point.
That means that even if inflation spikes this year, which is widely expected by economists, given the very weak levels of last year, the Fed is likely to see through this temporary pop and wait for monetary support to come by the The job market is healthier.
Such considerations are likely to surface this week, as Mr Powell testified before Senate and House legislators Tuesday and Wednesday. Longer-term returns in the bond market have risen as investors expect higher inflation. Thus, he may wonder how the central bank can offset labor worries on the one hand and concerns about fueling the economic surplus on the other.
He’ll likely give priority to supporting growth, as he has consistently done on recent outings. His colleagues have joined him to downplay inflation concerns.
Indeed, the worse statistic that Mr. Powell and Mrs. Yellen are using could make the urgency of their efforts for further relief, including higher spending by Congress, even more urgent.
“Given the number of people who have lost their jobs and the likelihood of some having difficulty finding work in the post-pandemic economy, achieving and maintaining maximum employment requires more than supportive monetary policy,” Powell said early this Month. “It will require a community-wide engagement, with input from the government and the private sector.”
Ella Koeze, Ben Casselman and Alan Rappeport contributed to the coverage.