The April jobs report brought us the worst employment data we've seen since we began counting back in 1948. Most media outlets are reporting an unemployment rate of 14.7 percent. The real unemployment rate is closer to 20 percent—a fifth of the workforce. Here's why.
April is spring break for many people, as well as when we celebrate Easter, Passover and Nauruz. Or just warmer weather. In most years, April is a time when around 4 million people are "employed but not at work"—an official census term that means just what it says. In most years, the vast majority of these people are either on vacation or sick.
This April, the census counted 11.5 million people as "employed but not at work" in its household survey. Millions of extra people did not suddenly go to Disneyworld, of course. It's closed. Instead, they were included in this category as "other": not on vacation, not home sick, not out for military service or jury duty. Just inexplicably absent from work.
The under-reporting of unemployment is right in front of everyone's noses. The census says in its own report that these people were misclassified. The report states, "Analysis of the underlying data suggests that this group included workers affected by the pandemic response who should have been classified as unemployed on temporary layoff."
Some of those in the "employed by not at work" category may have been home due to canceled vacations. In a normal April, around 1.6 million people are on vacation, but this April the survey counted only 600,000 Americans on vacation, a million fewer people than usual. It's easy to imagine that these people had spring break plans that got trashed when the world shut down, so they stayed home instead. They would have been counted as "other" because when the surveyor asked, "Were you on vacation?" they rightly said, "No, our plans got hosed."
So let's say that during the April survey week, a total of 1.6 million people were either on vacation or at home due to canceled vacation plans. That still leaves around 6.5 million people who likely gave pandemic-related reasons why they were out of work. They were unemployed but weren't counted as such.
If we add those 6.5 million people to the official tally, the unemployment rate jumps from 14.7 percent to 18.9 percent.
This higher unemployment figure is much more in line with other data in the April jobs report. The census actually conducts two surveys to create the report, not one. Each month, the bureau surveys businesses as well as households. The April household survey reported 14.7 percent unemployment based on 15 million jobs lost, a number that is artificially low for the reasons described above.
Yet the second survey—the establishment survey—reports 20.5 million job losses. If we add that jobs loss figure to the March unemployment figure of 7.1 million, we again get a total unemployment rate of around 19 percent.
And none of these adjustments account for the fact that the labor force participation rate shrank to a historic low. Many people simply gave up looking for jobs. Many people who had full-time jobs now suddenly face part-time work. Add in these individuals and you get a broader measure of joblessness that is well over 25 percent.
No wonder Treasury Secretary Steven Mnuchin and White House economic advisers Larry Kudlow and Kevin Hassett are telling us to prepare for 20 percent unemployment in May—upwards of 30 million people without jobs. It's because we're already there.
The coronavirus is wreaking havoc on our economy. No one questions that. What we're missing is that it's also wreaking havoc on our ability to measure what's happening in our economy.
David Robinson is the James and Gail Vander Weide Professor of Finance at Duke University's Fuqua School of Business and the research director of the Duke Innovation and Entrepreneurship Initiative.
The views expressed in this article are the writer's own.
