In Depth Analysis: CalculatedRisk Newsletter on Real Estate (Ad Free) Read it here.

Sunday, March 07, 2021

The Employment Situation is Far Worse than the Unemployment Rate Indicates

by Calculated Risk on 3/07/2021 09:13:00 AM

The headline unemployment rate of 6.2% significantly understates the current situation. 

Here is a table that shows the current number of unemployed and the unemployment rate (as of February 2021). 

Then I calculated the unemployment rate by including the number of people that have left the labor force since early 2020, and the expected growth in the labor force.


As the economy recovers, many of the people that left the labor force will probably return, and there will likely be more entrants into the labor force (although recent demographic data has been dismal).

Fed Chair Powell made a similar argument last month: Getting Back to a Strong Labor Market Excerpt:
Employment in January of this year was nearly 10 million below its February 2020 level, a greater shortfall than the worst of the Great Recession's aftermath.

After rising to 14.8 percent in April of last year, the published unemployment rate has fallen relatively swiftly, reaching 6.3 percent in January. But published unemployment rates during COVID have dramatically understated the deterioration in the labor market. Most importantly, the pandemic has led to the largest 12-month decline in labor force participation since at least 1948.  Fear of the virus and the disappearance of employment opportunities in the sectors most affected by it, such as restaurants, hotels, and entertainment venues, have led many to withdraw from the workforce. At the same time, virtual schooling has forced many parents to leave the work force to provide all-day care for their children. All told, nearly 5 million people say the pandemic prevented them from looking for work in January. In addition, the Bureau of Labor Statistics reports that many unemployed individuals have been misclassified as employed. Correcting this misclassification and counting those who have left the labor force since last February as unemployed would boost the unemployment rate to close to 10 percent in January.
emphasis added
Powell Unemployment Rate Click on graph for larger image.

This graph from the Fed shows the actually unemployment rate and some alternative estimates (mostly due to people leaving the labor force).

It would be a mistake to just look at the headline unemployment rate to assess the current situation.

The following graph - that I post each month - show the percent decline in employment since the start of each recession since WWII.

Employment Recessions, Scariest Job ChartThe second graph shows the job losses from the start of the employment recession, in percentage terms.

The current employment recession was by far the worst recession since WWII in percentage terms.

At the worst of the Great Recession, employment was down Down 6.29% from the previous peak.

Currently employment is down 6.21% - the current unemployment situation is about the same as the worst of the Great Recession (and there was no pandemic to contend with in 2009).