Friday’s headline U3 unemployment rate of 6.9% understates the number of out-of-work people, not by design, but by the peculiar circumstances of the pandemic.
In our estimation, this needs to be taken into account by policymakers around decisions on fiscal stimulus and other policies to stimulate employment.
By adjusting the number of unemployed for the number of people who are not in the labor force but want a job, and the pandemic unemployment rate jumps to 8.0%, our analysis in the figure below shows.
Even under the best of circumstances in which all employees on temporary layoffs are re-employed, the unemployment rate remains at 6.7%, which is only slightly better than the current U3 unemployment rate. This suggests that the 638,000 increase in payroll employment in Friday’s labor report should be tempered by the enormity of the task in restoring the labor force back to normal.
For point of reference, the U6 unemployment rate was reported at 12.1%. The U6 rate is commonly referred to as the underemployment rate and includes people who remain marginally attached to the labor force.
For more information on how the coronavirus is affecting midsize businesses, please visit the RSM Coronavirus Resource Center.