October 21, 2020

The Unemployment Rate Improved Last Month — But Remains Historically High

New data from the Bureau of Labor Statistics (BLS) show that the unemployment rate declined in September, but at a slower pace, which raised new concerns about the strength of the economic recovery. After the unemployment rate shot up from 4.4 percent in March to 14.7 percent in April, it has dropped steadily since then — most recently from 8.4 percent in August to 7.9 percent in September.

The decline in the unemployment rate from August to September results from a decrease in the number of unemployed individuals from 13.6 million to 12.6 million, partially offset by a decline in the size of the labor force of 700,000 workers. However, the current unemployment rate is still more than twice the rate that existed before the pandemic began.

The unemployment rate for september continued its decline from the record level that was set in April

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Job gains in September were largely driven by two industry sectors: leisure and hospitality; and trade, transportation, and utilities. The largest decline was in government employment, primarily because of declines in education jobs in state and local government.

Half of the job gains in september were in two sectors

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Despite labor market improvements, the unemployment rate does not tell the whole story

Despite the improvement in the reported rate of unemployment, a large number of workers continue to file for unemployment compensation. In the week that ended on September 26, there were 837,000 new claims (such data are released on a weekly basis). However, claims are down considerably from late March and early April, when they were near 7 million for two consecutive weeks.

Claims for regular unemployment insurance remain high

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The labor market’s overall improvement in September does not change the fact that conditions remain particularly difficult for non-white workers. The unemployment rate for white workers increased by 2.6 percentage points from March to September; meanwhile, each of the other racial and ethnic categories presented by the BLS experienced an increase of 4.3 percentage points or higher over that period.

Unemployment rates across racial and ethnic groups have increased significantly during the COVID-19 pandemic

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Standard unemployment rates do not fully account for the negative effects that the coronavirus pandemic is having on the labor market. After adding the workers who have stopped looking for work during the past four weeks, the overall unemployment rate increases from 7.9 percent to 8.2 percent. Adding the 6 million people that are working part time despite desiring full-time work brings the rate to 12.8 percent. In other words, one-eighth of American workers are currently affected by the ongoing downturn in the labor market, and not all of those individuals are captured by the headline unemployment rate of 7.9 percent.

The official unemployment rate does not include many workers that have been affected by the COVID-19 outbreak

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As the economy struggles and many people remain out of work, the federal budget will be affected in a number of ways. Income and payroll tax receipts will be at lower levels because fewer people are working. Also, payments for unemployment insurance and other safety net programs will remain relatively high, especially if lawmakers enact a continuation of certain additional unemployment benefits that expired on July 31. Legislation to provide relief to individuals and businesses from the pandemic has added more than $2 trillion to the deficit this year. However, there is no reasonable alternative — providing assistance to individuals who lose their jobs, especially during a global health crisis, can save the economy from suffering even further damage.


Related: Here’s Everything Congress Has Done to Respond to the Coronavirus So Far


Image credit: Photo by John Sommers II/Getty Images

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