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May 07, 2020

Measuring employment and unemployment—Primer and predictions

Opinion image

Since the 1940s the Bureau of Labor Statistics has measured US employment and unemployment using a large-scale monthly survey of households. Most wealthy countries have adopted similar surveys and definitions, occasionally with minor variations on this very highly respected statistical source. 

The US survey classifies the civilian population aged 16+ as “employed,” “unemployed,” or “out of the labor force.” Employed people are working at least part-time; unemployed people are not working AND are actively seeking work or on temporary layoff expecting to be recalled; those out of the labor force are not working, looking for work, or on temporary layoff. The “unemployment rate” is the percentage of unemployed in the labor force, defined as the sum of the employed and unemployed.

Just before the Covid-19 crisis (data for February 2020), 63.4% of adults were classified as employed or unemployed (in the labor force), with 61.1% of adults classified as employed. With the onset of the crisis and lock-downs, by the week of March 8–14 the percentage employed or unemployed had already fallen to 62.7%; the employed had fallen to 60.0%, and the unemployment rate had risen from 3.5% to 4.4%, a large increase but somewhat smaller than the largest monthly increase ever recorded (1.3 percentage points in October 1949). 

The statistics to be released on Friday May 8 will be based on a survey of behavior between April 12 and 18, when the full economic effects of lock-downs had been felt. We know that between mid-March and mid-April about 26 million people applied for unemployment benefits—presumably because they had lost their jobs. But that figure doesn’t include people whose work—hours spent and the kinds of jobs they held, like gig work—made them ineligible for benefits. A reasonable prediction is that employment fell compared to March by 30 million people, so that the percentage of adults employed fell to 48%. 

This is a fairly solid prediction of what will be by far the largest ever monthly percentage drop in employment—and by far the lowest percentage of employed among the adult population (the previous bottom of 55% was seen during several recessions in the 1950s). This is a striking measure of lost time; and paying attention to it is what conservative economists have long advocated, as it avoids worry about measuring the unemployment that they may view as at least partly voluntary.

The rise in the unemployment rate is much tougher to predict. As Coibion suggested based on a survey in late March, at that time the majority of Covid-19 job losers were not looking for work. They might have been counted as out of the labor force, not as unemployed, depending on their views about the chance of being recalled to work. If that remained true through mid-April, the unemployment rate might only have risen a bit from March, perhaps from 4.4% to 7% (still twice the largest previous monthly increase), and equaling the unemployment rate at the depths of the average post-1945 recession.

Perhaps; but I wouldn’t be surprised if more than half of those who lost jobs between mid-March and mid-April view themselves as actively seeking work. If that is correct, we will see the unemployment rate reported as 18%, an increase ten times that of the largest previously observed, and far and away the highest unemployment rate since the Great Depression. (The previous post-World War II high, at the depths of the 1982–1983 recession, was “only” 10.8%.) It is even possible, although I think unlikely, that all the job losers view themselves as unemployed, pushing the unemployment rate to 25%.

As former Bureau of Labor Statistics Commissioner Katharine Abraham points out, the crisis makes measurement of unemployment unusually uncertain. The unemployment rate reported tomorrow may be fraught with problems. But the ratio of employment to the population ratio is much less problematic; and it suggests losses of people’s jobs that would have been viewed as unthinkable only three months ago.

© Daniel S. Hamermesh

Daniel S. Hamermesh is Distinguished Scholar at Barnard College, USA, Director of Research Network at IZA, and Editor-in-Chief of IZA World of Labor

Read more on the coronavirus crisis:
"Coronavirus and the labor market," by Daniel S. Hamermesh
"Fighting a coronavirus recession," by Daniel S. Hamermesh
"Pandemics and the labor market—Then and now," by Karen Clay
"Pricing the lives saved by coronavirus policies," by W. Kip Viscusi
"Health effects of the coronavirus recession," by Christopher J. Ruhm
"The long-term consequences of missing a term of school," by Simon Burgess and Hans Sievertsen
"Coronavirus, telecommuting, and the labor market," by Nikos Askitas
"Expectations about Covid-19 social-distancing measures in Italy and their impact on compliance," by Guglielmo BrisceseNicola LaceteraMario Macis, and Mirco Tonin
"The coronavirus crisis and the next generation," by Bart Cockx
"Korea: A paragon of dealing with coronavirus," by Sok Chul Hong
"Economic implications of postponing the Tokyo 2020 Olympic Games," by Peter J. Sloane
"The sudden growth of employee autonomy during the coronavirus lockdown," by Elisa Gerten and Michael Beckmann
"Mitigating the work–safety trade-off," by Tito BoeriAlessandro CaiumiMarco Paccagnella
"Trading off lives for jobs," by Daniel S. Hamermesh
"Trends in Covid-19 infection: What New York City neighborhoods tell us," by George J. Borjas
"Labor markets during the Covid-19 crisis: A preliminary view," by Olivier CoibionYuriy GorodnichenkoMichael Weber
"Did California’s shelter-in-place order work? Early coronavirus-related public health effects," by Andrew FriedsenDrew McNicholsJoseph J. SabiaDhaval Dave
"200 billion hours to spend: The Covid-19 opportunity to upskill," by Peter SiminskiEmil Temnyalov
"The CARES Act—Massive government intervention in the economic crisis," by Richard Prisinzano
"What is happening to unemployment in the post-Covid-19 labor market?," by Katharine G. Abraham       

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