The official rate stood at 6.3 percent in January, but using an expanded metric, Fed and Treasury officials say it’s closer to 10 percent.
America’s official unemployment rate has
declined sharply after rocketing up last year, but top government economic
officials are increasingly citing a different figure — one that puts the
jobless rate at nearly 10 percent, well above its official 6.3 percent reading
and roughly matching its 2009 peak.
That emphasis on an alternative statistic,
espoused by leaders including the Federal Reserve chair, Jerome H. Powell, and
Treasury Secretary Janet Yellen, underlines both the very unusual nature of the
coronavirus shock and a long-running shift in the way that economists think
about weakness in the labor market.
The Bureau of Labor Statistics tallies up how
many Americans are actively looking for work or are on temporary layoff midway
through each month. That number, taken as a share of the civilian labor force,
is reported as the official unemployment rate.
But economists have worried for years that by
relying on the headline rate, they are ignoring people they shouldn’t,
including would-be employees who are not applying to work because they are
discouraged or waiting for the right opportunity. Looking at a more
comprehensive slate of labor market measures — not just the jobless rate — came
into style in a big way after the recession that stretched from 2007 to 2009.
The current conversation goes a step further.
Key policymakers are all but ditching the headline unemployment rate as a reference
point amid the pandemic, rather than just downplaying its comprehensiveness.
That highlights the unique challenges of measuring the labor market hit from
the coronavirus, and it suggests policymakers will probably be hesitant to
declare victory just because the job market looks healed on the surface.
“We
have an unemployment rate that, if properly measured in some sense, is really
close to 10 percent,” Ms. Yellen said on CNBC Thursday. A week earlier, Mr.
Powell cited the same figure in a speech about lingering labor market damage.
Mr. Powell has been clear that he adjusts the
headline unemployment rate for a simple reason: It’s leaving out a whole lot of
people.
“Published unemployment rates during Covid
have dramatically understated the deterioration in the labor market,” Mr.
Powell said during that speech. People dropped out of jobs rapidly when the
economy closed, and with many restaurants, bars and hotels shut, there is
nowhere for many workers who are trained in service work to apply.
They count those who have been misclassified
as “employed but not at work” in the Labor Department’s report, but who are
actually on temporarily layoff. Then they add back people who have lost work
since last February and are not applying to jobs right now, so that they are
officially counted as outside the labor pool.
“What
they’re trying to do with this unemployment rate is they’re saying, ‘Look,
we’re not there yet,’” said Claudia Sahm, a former Fed economist who now writes
columns, including for The New York Times. “It’s so heartening to see them find
a way to roll it up into a statistic that people understand.”
It is unclear whether all of the people who
have left jobs and are not currently looking for new ones will re-enter the
labor market when the crisis ends, but the fact that policymakers are being so
explicit about incorporating them into measures of labor market weakness is a
subtle but important shift.
After the 2008 downturn, Ms. Yellen was the
most prominent proponent of taking many measures into account when trying to
judge the job market’s strength. In 2013, when she was the Fed’s vice chair,
she gave a speech laying out a dashboard of data points — including a broader
measure often called the “underemployment rate” — that she looked to when determining
whether the job market could truly be considered strong.
But even as she emphasized a broad range of
data points as vice chair and later Fed chair, headline joblessness remained
the North Star for most economists, almost universally used as a gauge of how
close the labor market had gotten to “full employment.” And while economists
noted that the share of the population either working or applying to jobs had
dropped after the financial crisis, many did not expect the figure to bounce
back much.
American workers surprised them. As the
economy grew steadily, people did begin to flow in from the sidelines. And
thanks partly to that experience, this time around could be different.
Economic officials including Mr. Powell add
the full population of people who have left the labor market since last
February into their “unemployment” figure, rather than suggesting that some of
those people may remain without jobs permanently.
Mr. Powell does, at times, acknowledge that it
could be hard for some people who are out of work today to easily find new work
if their jobs on cruise liners or casinos never come back. But he generally
focuses on ways to build a bridge so that such people can find new careers —
not on adjusting the Fed’s expectations so that officials accept slightly
higher permanent unemployment as consistent with “full employment.”
That could matter for interest rate policy.
Fed officials have been clear that they plan to leave policy rates at rock
bottom — where they are set to bolster the economy — until labor market
conditions match their “assessments of maximum employment” and inflation is at
2 percent and on track to exceed it for some time.
That means that even as inflation temporarily
moves up this year, something that economists widely expect to happen as it is
measured against very weak readings from last year, the Fed will probably look
through that temporary pop, waiting to dial back monetary policy support until
the job market is healthier.
Such reasoning is likely to come up when Mr.
Powell testifies before Senate and House lawmakers on Tuesday and Wednesday.
Longer-term yields in the bond market have moved higher as investors begin to
expect higher inflation, so he could face questions about how the central bank
is balancing job market worries on one hand and concerns about fueling economic
excess on the other.
He’s likely to put a priority on supportinggrowth, as he has consistently done in recent appearances. His colleagues have
joined him in playing down inflation concerns.
In fact, the more dire statistic that Mr.
Powell and Ms. Yellen are using may be adding urgency to their push for
continued relief, including more spending from Congress.
“Given the number of people who have lost
their jobs and the likelihood that some will struggle to find work in the
post-pandemic economy, achieving and sustaining maximum employment will require
more than supportive monetary policy,” Mr. Powell said this month. “It will
require a societywide commitment, with contributions from across government and
the private sector.”
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