May 6, 2021

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US policymakers lose confidence in official unemployment rate

4 min read


When Brianna Kipnis was fired from a fitness startup last June, she thought it would be nice to take a month off before returning to the workforce. She canceled the lease on her New York apartment and moved in with her parents to neighboring New Jersey.

One month turned into nine, and with the pandemic still raging, Kipnis left the workforce of the world’s largest economy as she slowly lost hope in her job prospects.

Kipnis, 32, is among the millions of Americans who have stopped looking for work during the pandemic and are therefore not counted in the official unemployment rate, which has dived at 6.3 percent from 14.8 percent in April.

“It’s very disheartening,” she said. “Trying to stay motivated and positive is one of the hardest things right now.”

The desperation felt by Kipnis and many others is one of the reasons why American policymakers, from the Federal Reserve to the Biden administration, have lost faith in the unemployment rate as an indicator of the strength of the labor market. ’employment.

The rapid decline in the unemployment rate in the United States has so far exceeded forecasts by private sector economists and Fed officials. The last reading, for February, will be released on Friday.

But the aggregate figure has masked much less encouraging trends in the US labor market and is now seen as an incomplete and unreliable guide to the trajectory of the US recovery.

Brianna kipnis

“Unemployment rates released during Covid significantly underestimated the deterioration in the labor market,” Federal Reserve Chairman Jay Powell said in a speech last month, noting that an unemployment rate over realistic was closer to 10%.

The drop in the unemployment rate was in part due to misclassifications due to inaccurate survey responses during the pandemic. But, more importantly, it has been skewed by the drop in the number of Americans participating in the workforce.

Since the onset of the coronavirus crisis, the U.S. workforce has lost 4.3 million people, including 2.5 million women, who are neither working nor looking. Little or no improvement in these numbers since last summer.

Powell noted that “fear of the virus and the disappearance of job opportunities in sectors most affected by it” were the main causes of the exodus of the workforce, with virtual schooling that had forced many parents to stay at home.

Unemployment rate line graph (%) showing Unemployment rate has declined steadily since April
Line graph of civilian labor force (m) showing millions of Americans have dropped out of the labor force

Economists say Americans who have left the workforce are both older workers, who retired prematurely due to the pandemic and are less likely to return, and younger employees who wait for clearer times in the hope that their skills do not erode. Meanwhile.

The loss of confidence in the main unemployment rate as the definitive economic indicator also has big policy implications.

Even as the U.S. unemployment rate continues its rapid fall in the coming months, the Fed has said it will not begin to remove monetary support to the economy by raising interest rates until full. employment can be measured by a much wider range of measures, which almost certainly include labor force participation.

This position is the result of a great change in mentality within the US central bank over the past decade, away from a preventive tightening based simply on fears of inflation points.

“The Fed has definitely put emphasis on not looking at the unemployment rate as the only indicator of the health of the labor market,” said Lydia Boussour, economist at Oxford Economics.

The Biden administration has also largely ignored the rapid drop in the unemployment rate in the United States, as evidenced by its willingness to adopt a budget of $ 1.9 billion. Recovery plan. The White House says the relief bill is warranted because of the millions of Americans who are still unemployed and the continuing devastation of the crisis on small businesses and low-income households.

“Success for me would be if we could get back to pre-pandemic unemployment levels and see the re-employment of those who lost their jobs in the service industry,” Janet Yellen, the US Treasury Secretary, said in a New York Times. event last month.

Economists expect the US outlook to improve with vaccine rollouts and additional budget support, and that labor force withdrawal should end once Americans find it easier to find jobs and become more confident in their search.

The fear is that significant numbers of people will never return – and will be part of the long-term economic scars left by the pandemic.

“Whether recent dropouts re-enter the workforce – as they ultimately did after the global financial crisis – is key to the leeway that remains in the labor market,” Pearce wrote, economist at Capital Economics, in a note this week.

As for Kipnis, she spent much of her time without work looking after the children of her sisters, both health workers. She struggles to jumpstart her job search, but says if she doesn’t get serious leads after a few weeks of aggressive application, she’ll take another hiatus.

“I love to work and use my brain in this way, strategizing and being able to build something,” says Kipnis. “So I think I’ve just gotten to a point where I’m ready to use my brain again in this way and take on a challenge again.”



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