A couple of weeks ago the Bureau of Labor Statistics (BLS) reported the May unemployment rate at 13.3 percent. In normal times, such a number would be considered alarmingly high. But we are not in normal times. And compared the 14.7 percent rate for the preceding month, many – not the least President Trump – took the announcement as good news.
Unfortunately, there are a number of factors underneath this single statistic that should give us pause. First, there are questions about the accuracy of the figure itself. The median prediction from economic experts was just under 20 percent (my own guess was closer to 25 percent), and the discrepancy between it and the reported number was considered newsworthy. Before promptly retracting the statement, Nobel laureate economist Paul Krugman impulsively questioned whether Trump had leaned on the BLS to report an encouraging number. But he nevertheless insists that the number is “way off” because it is based more on modeling than actual data.
Second, even if accurate, the surprising reduction in the unemployment rate ignores the influence of the (presumably one-off) mass rehiring resulting from the government’s paycheck protection program. Many employers were told that their stimulus loans would be forgiven if they used at least 75 percent of the proceeds to keep workers on payroll. Result: Possibly over a million recently fired workers were rehired, contributing to job growth from April to May. But what will happen when the money runs out?
Third, leaving this aside, the unemployment rate, as always, understates true unemployment. The 13.3 percent figure does not include so-called marginally-attached workers – that is, people who have looked for a job in the past year but have not looked recently. It also does not include “discouraged workers” – those who have long given up finding work – nor those afraid to reenter the work force out of fear of contracting Covid-19. The rate also excludes people working part-time because they are unable to find full-time work. Finally, the unemployment rate also excludes those still being paid but on temporary or permanent layoff. If we counted all these omissions, the estimated unemployment rate would be more than double the reported number, or 27 percent.
Finally, even ignoring all of the above, perhaps the largest elephant in the room concerns the changing employment picture, or what some of us economists call the “segmented” labor market. People often compare recent unemployment rate figures (and even the most recent 13.3%) to the approximately 25 percent unemployment rate during the Great Depression. But back in those days, having a job much more often at least meant a solid, middle-class, benefits-providing existence that could support a family. These days, in contrast, one is fortunate to land the equivalent of this because of labor market segmentation.
While classification is always somewhat imprecise, many, if not the majority, of today’s jobs are temporary, “gig,” or otherwise precarious forms of employment. The process of labor market segmentation – that is, the division of the labor market into a pool of quality jobs and a growing pool of, well, “non-quality” jobs – has been occurring gradually over the past four decades. The scarce mention of this phenomenon is remarkable, and effectively conceals the fact that the official unemployment rate statistic is useless in comparing unemployment rates over long periods.
Bottom line: One can only speculate on what the U.S. employment situation will be in the near future. But the job losses we have seen in the past few months are colossal, even with a view over the past century. I always seek reasons to be hopeful, but it would be folly to take comfort in the modest decline in measured unemployment over the past month.