State of the Labor Market

June 2020 Jobs Day Preview: Watch Out for the Ambiguities in Joblessness

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A rise in more permanent forms of unemployment would mean the economy is far less likely to bounce back quickly.

The coronavirus has not only disrupted the US labor market, but also our usual measures of tracking its health. Both the sudden and stark rise in temporary layoffs and a measurement issue in one section of the past few jobs reports require looking at indicators that capture more sustained forms of joblessness.

Last month, the survey’s misclassification of some unemployed workers was thrust into the spotlight, despite it being present in several reports. Many interviewees responded that they were employed, but away from work that week. The Bureau of Labor Statistics has pointed out since the March report that the vast majority of these workers should have been marked as unemployed due to a temporary layoff. Adding in those misclassified workers increased the level of the unemployment rate, but still showed a decline from the month before. 

A decline in this adjusted rate, however, might be deceptive. These misclassified workers, along with unemployed workers on temporary layoff, are in a state of quasi-unemployment.  They aren’t currently working, but likely still have strong connections to their former employers. These workers, who were 13.4% of the labor force in May, could be recalled quickly to their old jobs, but they could just as easily move into more permanent unemployment. A decline in the ranks of the quasi-unemployed would show up as a decline in the unemployment rate, but could be a sign of either a quick bounce back or a more lasting damage.

A rise in more permanent forms of unemployment would mean the economy is far less likely to bounce back quickly from the coronavirus shock. The resulting labor market recovery would be more of a slog. One measurement is “core unemployment,” created by Indeed Chief Economist Jed Kolko, which looks at a broader measure of unemployment but strips out temporarily laid-off workers. That indicator shows more lasting damage is mounting. 

Regardless of your favored approach, any measure of joblessness that wants to capture the sustained damage to the labor market needs to account for the workers in these ambiguous situations. Not doing so could result in cheering the improvement in a misleading measure — when, in reality, lasting damage is starting to mount.

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

  • What will happen to the level of involuntary part-time work, which didn’t drop much after almost doubling in April?
  • Will the cumulative drop in employment continue to be concentrated in low average-wage industries?
  • Will more flows out of employment end outside of the labor force, a sign of more permanent job loss?
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