Coronavirus, State of the Labor Market

April 2020 Jobs Day Preview: How to Measure Joblessness During Coronavirus

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Getting a handle on how severe the hit to the US labor market depends on looking at the correct metrics.

The coronavirus has wreaked unprecedented damage on the US economy. The scale of the disruption has generated numbers that are not only hard to wrap your mind around, but that also strain our usual labor market metrics. The weekly unemployment insurance claims are useful for a high-frequency read of the labor market situation, but the jobs report will provide more information that claims numbers can’t tell us. These numbers can help measure the health of the labor market, but caution must be used in interpreting some old stalwarts. 

  • Unemployment insurance claims have been in the news quite a bit since the last jobs report. The weekly cadence of this data has provided a real-time look at the labor market. According to historical relationships, the number of unemployment claims through the week the April report was measured would imply a 16% unemployment rate. However, these figures understate the number of people who have lost a job as not all workers are eligible for unemployment insurance and many workers haven’t successfully filed yet.
  • The headline unemployment rate will understate joblessness despite capturing more of the job losers who are missed in the unemployment claims numbers. Many people who’ve recently lost their jobs during a pandemic will cease looking for work, drop out of the labor force, and therefore won’t count as unemployed. Even if the unemployment rate hits levels not seen in decades, it won’t fully capture the harm done. 
  • The employment-to-population ratio (EPOP) is a simpler measure of joblessness that treats unemployed workers and those out of the labor force similarly. A person either has a job or they do not. The aging of the population means looking at the ratio for the entire population might conflate retirement with people losing a job. The employment ratio for workers in their prime working years, ages 25 to 54, will give a better sense of the scale of the immediate impact. This was true during the last recession and the subsequent recovery as the prime-age employment rate did a better job predicting wage growth than the unemployment rate.
  • But even looking at just employment will leave out some disruption to the labor market. Employers have pulled back on workers’ hours and shifted employment toward part-time work. In the March report, average weekly hours dropped to levels not seen since 2011 and involuntary part-time employment rose by 1.4 million. They’ll almost certainly continue to do that moving forward. A full-time employment-to-population ratio could be useful for seeing how many workers not only keep their jobs, but have full-time hours. A more comprehensive measure scaling all employment by hours can be calculated using microdata, but they won’t be available when the jobs report is released.

All of these measures will show disturbing levels of joblessness. Accurately detailing the injury to the labor market requires following the appropriate metrics.

Elsewhere in the report, I’ll be looking for the answers to these questions:

  • How much of the increase in the unemployment rate comes from people who say they are on temporary layoff?
  • Will the decline in employment continue to be concentrated in industries that pay low average wages?
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