The Real Unemployment Rate Is Worse Than Trump Will Tell Us

There are millions of more jobless Americans than the Labor Department’s April report suggests.

April’s 14.7 percent unemployment rate, announced by the Labor Department last Friday, is awful by any standard. The official tally shows that unemployment increased by 15,938,000 people last month—to 23,078,000 overall—resulting in the highest jobless rate since the Great Depression.

As depressing as that may be, it’s not the full story. The Labor Department also reported Friday that the number of employed Americans fell by 22,369,000 people in April. If you reconcile the gap between 22,369,000 and 15,938,000, you’ll find that the real unemployment rate is much worse. The actual unemployment rate for April was at least 18.6 percent.

The erroneous reporting is not part of a conspiracy. The Census Bureau collects the data as part of its monthly Current Population Survey; the Bureau of Labor Statistics (BLS) then analyzes the findings.  But when layoffs skyrocket suddenly—as they have since the COVID-19 Pandemic took off—the survey’s categories and the terms the BLS uses to interpret the results produce a huge underestimate of real unemployment.

One major issue involves how the Census survey and BLS analysts count people who were furloughed from their jobs in April. Normally, the BLS rules say that anyone laid off temporarily does not count as unemployed. In March, BLS modified that rule by holding that individuals working for a business that was closed by the pandemic could be counted as either on temporary furlough or unemployed. Workers are therefore categorized based on how they described their work situation to the Census surveyors.  Publicly, BLS would like to have it both ways:  It reported that 18,063,000 Americans were “unemployed on temporary layoff” in April without saying how many of them it counted as unemployed.

We can make a reasonable estimate.  A recent Washington Post poll found that 77 percent of people laid off recently expect to return to their jobs, so they probably were not counted as unemployed under the current BLS rule.  Based on this finding, the BLS counted the other 23 percent—4,154,490 of those now furloughed—as unemployed.

Yet many of the other 13,085,510 furloughed workers who expect to get their old jobs back will be disappointed. A new study from the University of Chicago projects that 42 percent of recent layoffs will be permanent. Those findings suggest that 42 percent of the 18,063,000 workers furloughed in April—7,586,460 rather than 4,154,490—actually were laid off permanently. If that’s correct, BLS should add another 3,431,970 Americans to those officially counted as unemployed last month.

Another big problem with the April unemployment report involves how BLS decides who has left the labor force. Anyone not working who tells the Census surveyor that they were not “available” to take a new job or did not actively try to find one during the preceding four weeks is not considered to be part of the labor force, and therefore does not count as unemployed. Most months, the size of the labor force changes little, because new people entering it largely offset new retirees, people with new disabilities, and those who simply stop working. In February, the labor force shrank by 60,000 people.

The pandemic has changed that: BLS calculates that the labor force contracted by an astounding 6,432,000 people in April, including 4,252,000 Americans who wanted to work. As with those on furlough, the huge and abrupt labor market changes driven by the pandemic overwhelm BLS’s normal categories; and many of those seen as dropping out of the labor force should be counted as unemployed.

In fact, millions of Americans were not “available” for work in April because they were caring for children whose schools were closed—and millions of people didn’t look for new jobs because the avalanche of layoffs made a job search pointless. They fit a textbook definition of individuals whom the BLS excludes from the ranks of the labor force, and so do not count as unemployed. BLS further notes that 23 percent of those excluded from the labor force are  “marginally attached,” meaning they want a job but didn’t look for one, most likely because they have family or health issues or don’t believe any jobs are available. At a minimum, 23 percent of the 6,432,000 people newly excluded from the labor force in April also should be added to the list of the unemployed.

Finally, the Census survey asked people about their job status–during the course of one week—from April 12 to April 19. This technicality usually doesn’t matter much, because unemployment normally changes little in any month, much less in its last week. Again, the pandemic changed that.  We know that during the week following April 1, nearly 3.5 million more Americans filed for unemployment benefits.

Add up these three changes, and unemployment in April increased by at least 6,075,399 more than the 15,938,000 officially reported by BLS, jumping by 22,013,399 to a total of 29,153,399 Americans, for a real unemployment rate of at least 18.6 percent.

Throughout this pandemic, President Trump has tried to gaslight the American people by denying, wishing away, and minimalizing the COVID-19 threat and its mounting spread. Failing at this, his administration now insists that an economic recovery is right around the corner. Like the virus, however, Trump’s PR campaign is already colliding with a reality plainly and painfully evident to anyone willing to look at it.

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Robert J. Shapiro

Robert J. Shapiro, a Washington Monthly contributing writer, is the chairman of Sonecon and a Senior Fellow at the McDonough School of Business at Georgetown University. He previously served as Under Secretary of Commerce for Economic Affairs under Bill Clinton and advised senior members of the Obama administration on economic policy.