Should We Be Looking at Unemployment Numbers Differently?
A recent article in The New York Times about unemployment was titled: Don’t Cheer Too Soon. Keep an Eye on the Core Jobless Rate. The article advises that our view of unemployment numbers should be somewhat different. The author, Jed Kolko, is a well-known economist who is presently Indeed's (world's largest online jobs site) Chief Economist. Before Indeed, Jed Kolko was Vice President of Analytics and Chief Economist at Trulia.
Jared Kolko says “the coronavirus pandemic has broken most economic charts and models, and all the numbers we regularly watch need a closer look.” He continues, stating the drop in the unemployment number expressed by the Bureau of Labor Statistics (BLS) earlier this month was a result of the drop in temporary layoffs. If temporary layoff figures are removed, what we have left Kolko suggests is the core unemployment rate. Many economists have found it difficult with how to handle the vast number of temporary layoffs, as there is no precedent set for a complete shutdown of the economy. As the article states, in the last unemployment report:
“73 percent of all unemployed people said they were temporarily unemployed, which means they had a return-to-work date or they expected to return to work in six months. Before the pandemic, temporary unemployment was never more than one-quarter of total unemployment.”
The Core Unemployment Rate:
The core unemployment rate deals with this issue as well as deals with another concern economists have talked about for years: the exclusion of the marginally attached. These are people who are available and would like to work, but are counted as not in the the labor force instead of unemployed because they haven’t looked for a job in the past four weeks.
Kolko’s core rate does three things:
*Takes out temporary unemployment
*Retains the rest of the standard unemployment definition: permanent job losers, job leavers, and people returning to or entering the labor force
*Adds in the marginally attached
*Removing the temporarily unemployed makes sense according to the article:
Pandemic Relief Efforts
“Initial pandemic relief efforts focused on money for people to manage a temporary loss of income and funds to keep businesses afloat until they could bring their workers back. The hope and the goal is for the temporarily unemployed to return to their old jobs, rather than have them lose their jobs and have to search for new ones when jobs have become scarcer.”
The Bad News and the Good News
Clearly, the adjustments Kolko makes dramatically impact the way we look at unemployment. The bad news is, using his core rate, there was an increase in unemployment from April to May. The conventional rate reported by the BLS showed a decrease in unemployment.
The good news is that the core rate compares more favorably to the last recession in 2008. Here’s the breakdown:
The unemployment rate is a key indicator of how the economy is doing. Heading into a highly contested election this November, the BLS report releasing next week will be scrutinized like no other by members on both sides of the aisle. Mr. Kolko’s take is just one additional way to evaluate how unemployment is impacting American families.
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