Why the Drop in Unemployment Did Not Surprise Me
Yesterday on Facebook, I commented on someone’s post that I expected the unemployment rate for May reported today to be below 15 percent. I was right. It declined from 14.7 percent to 13.3 percent.
Why did I think that? Because a day earlier I had read an excellent article by my FB friend (and actual friend) Jack Tatom, a first-rate economist who spent much of his career at the St. Louis Fed. I got to know him during the glorious 6 months in 1994 when I was at the late Murray Weidenbaum’s Center for the Study of American Business at Washington University in St. Louis.
The article is Jack Tatom, “Don’t believe the overstated ‘headline estimates’ of unemployment,” The Hill, June 2.
Here’s an excerpt:
Since COVID-19 deaths began to rise in mid-March, people have awakened every Thursday to the latest report of the number of unemployed associated with virus-related shutdowns. A recent “headline estimate” of job loss was 40.8 million people, but a more reasonable and accurate number is less than half that. The overstated loss in employment of 23 million people is large and grows every week.
The headline estimate is based on adding the number of “initial claims” for unemployment compensation, filed with state unemployment insurance offices each week, to the total from the week before. The report is issued by the U.S. Department of Labor’s Employment and Training Administration for the week ending the previous Saturday. But each week, the same report includes the continued claims for unemployment — called insured unemployment — which includes those who claim they were unemployed for at least a week and who are due unemployment compensation.
People who file initial claims are often subsequently revised off the rolls because their claim was invalid or because they obtained jobs before they could claim their first weekly benefit. Each week some of the past unemployed drop out of the “continued claims” data because they find new jobs or, these days, are called back to existing ones, and are no longer eligible for unemployment compensation.
I had been like many people in adding the weekly unemployment insurance claims. I had thought that pretty much everyone who applied for unemployment insurance got it and also that very few of those people would have been called back to work by now. It looks as if I was wrong on both counts. That’s why I quickly revised my view on Wednesday.
Now it’s true that nowhere in the article does Jack say that the number of new jobs would rise by over 2 million. I’m guessing he expected a rise–my own gut feel was 500,000–but I’m guessing also that this rise surprised him. What’s not that surprising is that the unemployment rate fell.