Friday’s headline U3 unemployment rate of 6.0% for February is likely an undercount of out-of-work people in the United States, not by design, but by the peculiar circumstances of the pandemic. While the topline change in net employment after adding in back revisions was 1.072 million, it will likely be later in 2022 before the economy returns to full employment, which we define as somewhere near 3.5%.
An analysis of the labor report suggests that the unemployment rate, accounting for the effects of the pandemic, is substantially higher. By adjusting the number of unemployed to include the increase in the number of people who are not in the labor force but want a job, the pandemic unemployment rate jumps to 6.8%, as our analysis in the figure below shows.
This suggests that the encouraging 916,000 increase in March payrolls should be seen within the enormity of the task of restoring the labor force back to normal. Yet even the definition of “normal” is undergoing revision.
By one definition, “normal” now includes those who have become discouraged by the lack of suitable employment and have technically been dropped out of the labor force. What is being called the “real” unemployment rate suggests that 9.9% of the labor force is currently unemployed.
Another measure, the U6 “underemployment” rate—which is currently 10.7%—counts those who are only marginally attached to the labor force and are insufficiently employed.
Reducing the real unemployment rate comes with additional burdens imposed by society. As with the demographic and socio-economic factors shown to be determinants of the severity of coronavirus infections, the data indicates an ethnic component to employment opportunity. Though improvements are noticeable, unemployment among the white population remains lower than other ethnic groups, with the gap showing a tendency to widen during economic downturns.
As of March 2021, white Americans have a 5.4% unemployment rate, compared to an 7.9% rate for Latino/Hispanic Americans and a 9.6% rate for Black/African Americans.
In terms of policy, there are reports that the Fed has been looking at the “real” unemployment rate, which suggests that calls for rate hikes by financial market participants might be out of step with the goals of the monetary authorities. As to employment opportunities, the fiscal authorities can have a direct impact by expanding employment and procurement practices and indirectly, by taking steps to eliminate the education and health gaps.