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.
READER COMMENTS
Daniel Kuehn
Jun 5 2020 at 10:51pm
I’ve been sharing the claims data on a weekly basis for my largely non-economist family and friends on Facebook and I similarly started cautioning about two weeks in that the claims matter for understanding what happened that week but they can’t be thought of cumulatively because of benefits denial and churn. The numbers today still surprised me.
The reason is that the insured unemployment rate (the stock comparable to the “initial claims” flow) was higher at the end of the CPS reference week so you’d think the unemployment rate would be higher. A lot of things could be happening but it still is a little puzzling even if you don’t make the mistake of treating initial claims cumulatively.
Part of the story I think is that while the insured unemployment rate was higher it was trending down at the time so people were going back to work. Fell by almost three million with churn even higher than that. You can respond on the CPS that you worked in that reference week and also have collected unemployment insurance that reference week if that happened to be the week you went back to work. Call it “Schrodinger’s worker,” both unemployed and employed at the same time. The churn here is so enormous it can explain a difference of millions in the numbers.
This is just an idea but I do think it’s a bit more puzzling than your friend suggests. Certainly he’s right that people would have been lead astray to think of the initial claims cumulatively.
I assume everyone is also up to speed on the erroneous COVID coding which this month is about three percentage points. But that’s a separate complication.
David Henderson
Jun 6 2020 at 9:38am
You wrote:
Great line.
Thomas Hutcheson
Jun 6 2020 at 8:10am
I see the increase in employment as confirmation that people actually want to work and that the focus on making unemployment insurance hard to get and only a small part of lost income is a big mistake, and not only because it set the stage for the misguided PPP, bailouts for firms, and unemployment top up.
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