What was the peak unemployment rate during the Great Depression? It was approximately 26 percent in the second quarter of 1933—after the NBER reports that the formally defined Depression was over, as shown in the shaded area in the FRED chart below, covering the years from the second half of 1929 to the end of 1942.
Source: St. Louis Federal Reserve Bank, FRED chart, Unemployment rate, 1929-1942.
So how and when will we know whether this is a Second Great Depression or a Second Great Recession? One way is to watch the payroll numbers and ADP has reported a drop of 2.8 million jobs in May. That would ordinarily be a big shock, but when analysts were expecting a loss of more than 8 million jobs, it is a relief.
Mark Zandi of Moody's Analytics went so far as to say that the Covid-19 Recession is already over barring serious policy errors or a "second wave" of the virus. He also warned that recovery will be slow.
One problem with the numbers that are being reported by the Bureau of Labor Statistics (BLS) is that many workers believe they will get their jobs back when commercial enterprises are reopened. They are not working but are not looking for work while the pandemic is still in place.
Just to review how the BLS does its work: It contracts with the Census Bureau to do a monthly national phone survey. The Census Bureau asks someone in each surveyed household how many people are employed and how many are unemployed, i.e., not working and looking for work. The two numbers together are called the "workforce." The unemployment rate is the number of unemployed divided by the workforce. Although the sample is approximately 50,000 households per month, the surveyed population is a scientific sample to represent the nation and the numbers are extrapolated to counties and the nation.
We can despair of the numbers or look more closely at the range of unemployment numbers that the BLS now reports, as shown in the chart below covering the data through April 2020. These numbers provide information on how long people have been unemployed and whether some people are omitted because they have left the workforce for retirement, for care of children or seniors or disabled family members, or for study. (The current recession is being called a "Shecession" because so many female workers need to stay home from work to care for their children in Covid-19 conditions when schools are closed and using paid child care becomes more risky.)
Measure
|
Apr.
2019
|
Dec.
2019
|
Jan.
2020
|
Feb.
2020
|
Mar.
2020
|
Apr.
2020
|
U-1 Persons unemployed 15 weeks or longer, as a percent of the civilian labor force
|
1.3
|
1.2
|
1.2
|
1.2
|
1.2
|
1.1
|
U-2 Job losers and persons who completed temporary jobs, as a percent of the civilian labor force
|
1.6
|
1.6
|
1.6
|
1.7
|
2.4
|
13.2
|
U-3 Total unemployed, as a percent of the civilian labor force (official unemployment rate)
|
3.6
|
3.5
|
3.6
|
3.5
|
4.4
|
14.7
|
U-4 Total unemployed plus discouraged workers, as a percent of the civilian labor force plus discouraged workers
|
3.9
|
3.7
|
3.8
|
3.8
|
4.7
|
15.1
|
U-5 Total unemployed, plus discouraged workers, plus all other persons marginally attached to the labor force, as a percent of the civilian labor force plus all persons marginally attached to the labor force
|
4.5
|
4.2
|
4.4
|
4.4
|
5.2
|
16.0
|
U-6 Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force
|
7.3
|
6.7
|
6.9
|
7.0
|
8.7
|
22.8
|
Some of those who believe they are only temporarily unemployed will actually not find their job waiting for them. Their employer may not be able to weather the period of closure. New announcements appear daily of retailers and restaurants and drinking places that will not reopen. At the end of the Payroll Protection Plan (PPP), which is keeping some workers off the unemployment rolls, will the employer still be there, and ready to keep everyone on the payroll, or will post-Covid business reorganizations mean there will fewer customers or different employee needs? (The PPP was originally passed for eight weeks and today the House-passed bill to extend PPP to 24 weeks was passed by the Senate.)
The PPP is an approximation of the German Kurzarbeit (short-time working), which subsidizes up to 60 percent of salaries (67 percent for workers with dependent children) if employers maintain their payrolls in a recession or a drop in sales. The German subsidy does not require a special authorization; it is an automatic stabilizer. The program has spread to 20 percent of the German workforce, is considered highly successful and has been copied in at least six other European countries.
If we use the official unemployment number, U-3, April showed a rate of 14.7 percent. If we pay more attention to U-6, the unemployment rate in April was 22.8 percent.
What will the May unemployment number look like? The official U-3 rate may be kept lower by retirements, according to an April study, but the April U-3 number was more than 8 percentage points higher than the study predicted.
(Hat tip to Dr. Jurgen Brauer and Geoffrey Hilton for reviewing this post and making suggestions.)
