March 9, 2021

Why Top Economists Are Citing a Higher-Than-Reported Jobless Rate

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.

The second group is much bigger, adding nearly three percentage points to the refurbished unemployment rate.

“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.

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