Friday’s unemployment rate of 5.2% for August is probably an undercount of the number of out-of-work people in the United States.
Under the Bureau of Labor Statistics’ way of measuring unemployment, those who are out of work and no longer looking for a job are not counted as unemployed, so they do not count in the headline rate. But many of those workers would in fact welcome the chance to work, and the bureau does track them.
When those workers are included, that rate, which we call the “real” unemployment rate, is 8.4%. And with federal Pandemic Unemployment Assistance set to expire on Sept. 6, that will only add more pressure on those out of work.
When those who are not in the labor force but want a job are included, the “real” unemployment rate is 8.4%.
Another measure of the jobless rate, the U6 underemployment rate, counts those who are only marginally attached to the labor force and are insufficiently employed. That figure stands at 8.8%, according to the bureau.
In our estimation, the decision to eliminate the additional federal benefits was made in haste, and in retrospect was a policy error. Too many assumed that the pandemic was over. Now, with the pandemic resurgent, this is not the time for reduced jobless benefits as hiring slows.
The Federal Reserve should factor in this removal of federal benefits when it considers paring back its monthly asset purchases of $120 billion. The elimination of the benefits underscores our call for a November announcement and December start to easing those asset purchases. September, in our view, would be too soon to kick off the process.
What’s clear is that the discouraging 235,000-job increase in August, down from an upwardly revised 1.053 million increase in July, highlights the enormity of the task ahead of us.
Not only do we need to restore the labor force back to pre-pandemic levels, but the economy must also find a way to include those who have become discouraged and have technically been dropped out of the labor force.
This means making it possible for households to meet both their family and work obligations, and to educate the work force to meet the demands of the new economy.
For more information on how the coronavirus pandemic is affecting midsize businesses, please visit the RSM Coronavirus Resource Center.