CHICAGO, IL – By now the destructive forces of the coronavirus inspired shutdown policies are clear to see. Official first time jobless claims over the last 6 weeks are approaching 40 million, businesses are withering on the vine, and no one is quite sure how long it will take to repair the damage done to the all livelihoods that make up the economy.
Yet, the official numbers from the U.S. Department of Labor do not fully reflect full scale of the economic disruption plaguing the nation. With this in mind, two economists from the Federal Reserve Bank of Chicago set out to design a more accurate measuring stick for current unemployment. The indications are alarming. As in, the economists predict unemployment is actually at or exceeding unemployment rates during the Great Depression.
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“Despite its popularity, the official unemployment rate does not capture all workers facing adverse employment conditions. To count as unemployed, one must be out of work and either on temporary layoff or actively looking and available for new work. This leaves out many people who want to work but did not look for work in the period covered by the data, as well as people who may remain employed but at substantially reduced hours. […]
We have developed a new measure of labor market underutilization that is tailored to the Covid-19 crisis. Between February and March, the official unemployment rate rose by 0.8 percentage points, from 3.8% to 4.5%, representing an increase of 1.2 million workers.1 But our measure rose by 2.5 percentage points, from 10.4% to 12.9%, representing an increase of about 4.1 million workers. If we project these changes under different scenarios to get an idea of what we might expect for the April employment report, we get unemployment rates ranging from 8.2% to 16.0%, marking an additional rise ranging from 3.7 to 11.5 percentage points in the official unemployment rate. These are staggeringly large increases, but they pale in comparison to the projected increases in our new measure of between 12.2 and 21.7 percentage points. We project our new measure will rise to between 25.1% and 34.6%. […]”
Around the world, economies are just beginning to emerge from lockdown to slowly realize the extent of the economic devastation. The longer the lockdowns suppress livelihoods and businesses, the deeper and longer lasting the damage.
At some point, the inertia of economic contraction becomes a force of its own, with it’s own domino effects, such that the crisis will remain long after COVID-19 infections are barely a blip.
For more insights from the Chicago Fed blog, go here.