Updates from Chicago Booth

Why US unemployment is even worse than the official numbers say
By Rebecca Stropoli – The COVID-19 crisis has sent the US jobs market reeling. As of April 16, more than 22 million workers had filed unemployment claims since the shutdowns began in March.

But the real unemployment figures are likely higher than reported, suggests research by University of Texas’s Olivier Coibion, University of California at Berkeley’s Yuriy Gorodnichenko, and Chicago Booth’s Michael Weber. Despite catastrophic job losses, an increase in workers dropping out of the labor force altogether may mean the official unemployment rate is misleadingly low, they argue.

To track the pandemic’s effect on unemployment, the researchers used an ongoing survey, conducted by Nielsen, of households that participate in its Homescan panel, studying three key measures typically tracked by the Bureau of Labor Statistics (BLS): the unemployment-to-population ratio, the unemployment rate, and the labor-force-participation rate.

During recessions, as the employment-to-population ratio falls, the unemployment rate typically rises, and vice versa. But in more severe recessions, a higher number of discouraged out-of-work people may stop looking for employment. In this case, while the employment-to-population ratio is low, the unemployment rate doesn’t rise at the same rate, as there are fewer people who are an active part of the labor force.

The researchers tracked surveys prior to and during the pandemic. They find that the employment-to-population ratio had fallen by around 7.5 percent in April, which meant almost 20 million jobs had been lost as of April 6, far more than the estimated 16.5 million that had been reported. State governments’ inability to process such a crushing number of claims, coupled with the fact that many workers aren’t eligible for unemployment benefits, may account for the underestimation, the researchers note. more>

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