We know that tens of millions of people are currently out of work in the United States. More than 26 million workers filed for unemployment benefits between mid-March and mid-April alone. The most popular measure of the strength of the labor market is the unemployment rate. Forecasts for how much it will rise in the coming months vary widely, but many economists now expect an increase to at least 15%, and perhaps much more.
Despite its popularity, the official unemployment rate does not capture all workers facing adverse employment conditions. To count as unemployed, one must be out of work and either on temporary layoff or actively looking and available for new work. This leaves out many people who want to work but did not look for work in the period covered by the data, as well as people who may remain employed but at substantially reduced hours.
The Labor Department has alternative, broader measures of labor market underutilization that track these individuals, too, but the unique nature of the downturn caused by the Covid-19 crisis and the subsequent stay-at-home directives has put people out of work in ways that even these alternative measures may miss. For example, the evidence suggests that employment losses are likely in the tens of millions, but many individuals are finding it hard to actively look or be available for work and therefore be classified as unemployed.
We have developed a new measure of labor market underutilization that is tailored to the Covid-19 crisis. Between February and March, the official unemployment rate rose by 0.8 percentage points, from 3.8% to 4.5%, representing an increase of 1.2 million workers. But our measure rose by 2.5 percentage points, from 10.4% to 12.9%, representing an increase of about 4.1 million workers. If we project these changes under different scenarios to get an idea of what we might expect for the April employment report, we get unemployment rates ranging from 8.2% to 16.0%, marking an additional rise ranging from 3.7 to 11.5 percentage points in the official unemployment rate. These are staggeringly large increases, but they pale in comparison to the projected increases in our new measure of between 12.2 and 21.7 percentage points. We project our new measure will rise to between 25.1% and 34.6%.
Chosen excerpts by Job Market Monitor. Read the whole story @ – Federal Reserve Bank of Chicago