us policymakers lose faith in official unemployment rate

A waitress passes mannequins populating the dining room of a restaurant in Virginia. Officials are more sceptical of the officialunemployment rate, which undercounts people who have dropped out of the jobs market. © Olivier Douliery/AFP via Getty Images

James Politi in Washington and Taylor Nicole Rogers in Chattanooga 59 MINUTESAGO

When Brianna Kipnis was laid off from a fitness start-up last June, she thought itwould be nice to take a month off before returning to the jobs market. She cancelledthe lease on her New York City apartment and moved in with her parents inneighbouring New Jersey.

One month turned into nine and, with the pandemic still raging, Kipnis drifted out ofthe labour force of the world’s largest economy as she gradually lost hope in heremployment prospects.

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US economy

US policymakers lose faith in official unemployment rate

Decline in labour force participation during pandemic means headline number is too rosy

US policymakers lose faith in official unemployment rate | Financial Times https://www.ft.com/content/10c3d7aa-8b92-42d0-97f7-e2090561fc42

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Kipnis, 32, is one of millions of Americanswho have stopped looking for work duringthe pandemic and is therefore uncounted inthe official unemployment rate, which hasplunged to 6.3 per cent from 14.8 per cent inApril.

“It’s very discouraging,” she says. “To try tostay motivated and positive is one of theharder things right now.”

The hopelessness felt by Kipnis and manyothers is one of the reasons that US

policymakers, from the Federal Reserve to the Biden administration, have lost faith inthe unemployment rate as an indicator of the strength of the jobs market.

The rapid decline in the US jobless rate has so far exceeded the forecasts of privatesector economists and Fed officials alike. The latest reading, for February, will bepublished on Friday.

But the headline figure has obscured far less encouraging trends in America’s labourmarket, and is now considered an incomplete and unreliable guide to the trajectory ofthe US recovery.

Brianna Kipnis

“Published unemployment rates during Covid have dramatically understated thedeterioration in the labour market,” Jay Powell, the Federal Reserve chair, saidduring a speech last month, noting that a more realistic unemployment rate wascloser to 10 per cent.

Whether the recentdropouts re-enterworkforce — as theyeventually did post-global financial crisis —is key to how much slackremains in the labourmarket

Michael Pearce


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The drop in the unemployment rate has been partly driven by misclassification errorsbecause of inaccurate survey responses during the pandemic. But, most importantly,it has been distorted by the plummeting number of Americans participating in thelabour force.

Since the start of the coronavirus crisis, the US labour force has lost 4.3m people,including 2.5m women, who are neither in work nor searching for it. Little or noimprovement has been made in those numbers since last summer.

Powell noted that “fear of the virus and the disappearance of employmentopportunities in the sectors most affected by it” were the primary causes of the exodusfrom the labour force, along with virtual schooling that had forced many parents tostay at home.


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Economists say that Americans who have left the workforce are a combination ofolder workers, who retired early because of the pandemic and are less likely to comeback, and younger employees who are waiting for brighter times in the hope that theirskills do not erode in the meantime.

The loss of confidence in the main jobless rate as a definitive economic indicator alsohas big policy implications.

Even if the US unemployment rate continues its rapid descent in the coming months,the Fed has said it will not start removing its monetary support for the economy byincreasing interest rates until full employment can be measured by a much broaderrange of measures, which will almost certainly include labour force participation.

This stance is the result of a big shift in thinking at the US central bank over the pastdecade away from pre-emptive tightening based merely on fears of inflation spikes.

“The Fed has definitely been highlighting and putting emphasis on not looking at theunemployment rate as the only gauge of labour market health,” said Lydia Boussour,an economist at Oxford Economics.

The Biden administration has also largely ignored the quickly falling USunemployment rate, as evidenced by its push to pass a $1.9tn fiscal stimulus package.The White House says the relief bill is justified because of the millions of Americanswho are still out of work and the lingering devastation of the crisis on smallbusinesses and low-income households.


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“Success to me would be if we could get back to pre-pandemic levels ofunemployment and see the re-employment of those who have lost jobs in the servicesector,” Janet Yellen, the US treasury secretary, said at a New York Times event lastmonth.

Economists expect that the US outlook will brighten with the rollout of vaccines andextra fiscal support, and that the labour force withdrawal should stop once Americansfind it easier to secure jobs and become more confident searching for them.

The fear is that a significant number of people will never return — and will be part ofalong-term economic scarring left by the pandemic.

“Whether the recent dropouts re-enter the workforce — as they eventually did post-global financial crisis — is key to how much slack remains in the labour market,”Michael Pearce, an economist at Capital Economics, wrote in a note this week.

As for Kipnis, she has spent much of her time out of work providing childcare for hersisters, both of whom are healthcare workers. She is working to rekindle her jobsearch but says that if she does not get any serious leads after a few weeks of applyingaggressively she will take another break.

“I do love working and using my brain in that way, strategising and being able to buildsomething,” Kipnis says. “So I think I’ve just gotten to a point where I’m ready to usemy brain again in that way and have a challenge again.”


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us policymakers lose faith in official unemployment rate

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