The unemployment rate quite unexpectedly dropped to 13.3 percent in May, according to new data released this morning by the Bureau of Labor Statistics. But not even the BLS really believes that.
At a press conference this morning, President Donald Trump called the decline in unemployment from April’s 14.7 percent “the greatest comeback in American history.” Pretty obviously, it isn’t that. The official unemployment rate is lower than it was in April, but it’s still higher than it was for 60 years before that.
It’s also too good to be true.
The private payroll company ADP drops its own monthly surveys on workforce participation two days before the BLS releases its jobs numbers. Normally, the ADP findings at least roughly track those in the BLS reports. This time, though, ADP showed private payroll employment dropping in May by 2.7 million. The BLS data, by contrast, showed private payroll employment rising by 3.1 million. Nearly half of the jobs in this tally were restaurant jobs, and a quarter of a million of them jobs in dentists’ offices. Indeed, the unemployment drop is entirely attributable to that gain in private-sector jobs, because government employment fell in May.
But that 3.1 million job gain is wiped out when you take into account a statistical glitch that the BLS admits to—the misclassification of about five million workers as “employed” who said they were “not at work for other reasons” than losing their jobs. The likelihood that these people will get their old jobs back diminishes with each passing day. But even aside from the question of job viability for these workers, the BLS is required to classify such people as unemployed, and for some as yet ill-explained reason, it didn’t. If it had, the BLS says, the unemployment rate would have risen in May to 16.1 percent. And that’s before seasonal adjustment to the jobless count, which would raise the rate even higher.
Jason Furman, who was chairman of the Council of Economic Advisers under President Barack Obama, and Wilson Powell III, his colleague at Harvard’s Kennedy School of Government, calculate that when you figure in this and other problems with the May calculations, the true unemployment rate is 17.1 percent. (Let’s also remember that any single-digit job gain must be balanced against a two-month loss in March and April of more than 22 million jobs.)
Without diving into the weeds, though, it appears that even an honest reckoning of May’s employment trend, based on the limited data available, yields a rather surprising gain rather than the loss most observers were anticipating. Furman and Powell’s reckoning of the “realistic unemployment rate” at 17. 1 percent is, as they note, lower than their similarly “realistic” calculation that April’s true unemployment rate was 20.5 percent. We all want unemployment to go down, so that really is something to celebrate—however cautiously.
It’s also a reason to congratulate the president on his administration’s greatest (indeed, sole) domestic accomplishment: the $600 sweetener added to weekly unemployment benefits. Trump being Trump, he’d rather you didn’t. He agreed to it only at the prodding of congressional Democrats in March, and reportedly he’s itching to discontinue the payout when it expires at the end of next month.
He’s far from alone. Business groups and congressional Republicans have been moaning lately that the $600 sweetener is fouling up their attempts to reopen America. They complain that the additional money in unemployed workers’ pockets is a disincentive for them to get back on the job. As generations of welfare critics have long preached, individual initiative is supposed to collapse when you can make more (or even as much) from not working than working. (Though congressional Republicans do at least concede that there’s also that small matter of a deadly epidemic continuing to rage.)
Conservatives aren’t wrong that a lot of workers got a raise when the coronavirus sent them to the unemployment office. The $600 figure was a quick back-of-the-envelope calculation of what it would take for the typical worker to receive in unemployment benefits a sum roughly equivalent to what that worker would normally receive in salary. But the job losses caused by the lockdown did not fall on the “typical” worker. They were tilted heavily toward low-income people, especially in the fast-food and hotel industries.
Consequently, the median salary replacement achieved under the $600 weekly bonus overshot the target of 100 percent of lost income and worked out to 134 percent of income, according to a mid-May study from the University of Chicago. Two-thirds of those eligible for unemployment benefits are able to pull down more in unemployment than they did on salary, the study concluded. Were the $600 sweetener to be extended another six months through January, the Congressional Budget Office reported Thursday, about five-sixths of recipients would receive more in unemployment benefits than they received on salary.
This is a small triumph for low-income workers. Since 2012, the Fight for $15 movement, backed by the Service Employees International Union, has been demanding an increase in the minimum wage to what amounts, for a full-time worker, to $600 per week. Now they’ve gotten it—sort of. Granted, Congress still refuses to enact a national hourly wage above the current $7.25, and Trump reneged on his 2016 campaign promise to raise it even to $10. As long as we’re guaranteeing full-time minimum-wage workers who are now unemployed $600 per week, it doesn’t make a lot of sense to deny it to their counterparts in the labor market.
Please note that the sweetener payment has not produced any downturn in the job market—the sturdy refrain that die-hard opponents of minimum wage hikes always echo any time they’re up for discussion in Congress. Maybe that’s because workers understand that, even if the $600 benefit is extended, it won’t last forever. Less happily, maybe it’s because the Labor Department’s pressure on states to deny unemployment benefits to workers who refuse their former bosses’ offers to return to work is sending displaced employees back into the workforce, to the likely detriment of public health.
For whatever reason, and under whatever sort of external political momentum, one thing is clear: The official BLS numbers, together with Furman and Powell’s unofficial numbers, indicate that Americans are going back to work. To deny those who don’t six months more of their $600 weekly unemployment boost would undo a significant, if accidental, redistribution of income—one that shows absolutely no evidence of doing the economy any harm. Indeed, by helping to stimulate spending, the $600 sweetener may be doing the economy quite a bit of good, at a moment when it can use all the help it can get.