Tag: Economics

The unemployment rate for May is higher than the 13.3 percent figure widely reported today.

Not noticed by me (and nearly everyone else) in today’s jobs report from the Bureau of Labor Statistics, part of the United States Department of Labor, is a note disclosing an error.

The error has to do with the way workers are classified: employed, unemployed, or not in the labor force. The upshot is this, as BLS describes: Without the error, the unemployment rate would have been three percentage points higher than the 13.3 percent widely reported today. (The three points is on a not seasonally adjusted basis.) Here’s what BLS noted: ¹

If the workers who were recorded as employed but absent from work due to “other reasons” (over and above the number absent for other reasons in a typical May) had been classified as unemployed on temporary layoff, the overall unemployment rate would have been about 3 percentage points higher than reported (on a not seasonally adjusted basis). However, according to usual practice, the data from the household survey are accepted as recorded. To maintain data integrity, no ad hoc actions are taken to reclassify survey responses.

In a separate document, BLS offered a larger explanation: ²

Household survey: What would the unemployment rate be if these misclassified workers were included among the unemployed?

If the workers who were recorded as employed but not at work for the entire survey reference week had been classified as “unemployed on temporary layoff,” the overall unemployment rate would have been higher than reported. This kind of exercise requires some assumptions. For example, first one needs to determine how many workers might be misclassified. There were 5.4 million workers with a job but not at work who were included in the “other reasons” category in May 2020, about 4.9 million higher than the average for May 2016–2019. (While this category contains misclassified workers, not every person in this category was necessarily misclassified. The average for recent May estimates was 549,000 employed people with a job not at work for “other reasons.”)

One assumption might be that these additional 4.9 million workers who were included in the “other reasons” category should have been classified as unemployed on temporary layoff. If these workers were instead considered unemployed on temporary layoff, the number of unemployed people in May (on a not seasonally adjusted basis) would increase by 4.9 million from 20.5 million to 25.4 million. The number of people in the labor force would remain at 158.0 million in May (not seasonally adjusted) as people move from employed to unemployed but stay in the labor force. The resulting unemployment rate for May would be 16.1 percent (not seasonally adjusted), compared with the official estimate of 13.0 percent (not seasonally adjusted). Estimates of people with a job but not at work are not available on a seasonally adjusted basis, so seasonally adjusted data, such as the unemployment rate mentioned in The Employment Situation news release, are not used in this exercise. (Repeating this exercise, but combining the not seasonally adjusted data on additional people with a job but not at work in the “other reasons” category with the seasonally adjusted estimates reported in The Employment Situation news release yields a similar 3.1 percentage point increase in the unemployment rate for May — or 16.4 percent, compared with the official seasonally adjusted rate of 13.3 percent.)

More reporting is in the Washington Post at A ‘misclassification error’ made the May unemployment rate look better than it is. Here’s what happened.

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Notes

There is good news in the jobs report for May, if unexpected.

Update: There is an error in the estimates made from the household survey, meaning the unemployment rate is higher than reported below. See The misclassification error in the May 2020 jobs report for more on this.

The headline number from the jobs report released today by the Bureau of Labor Statistics, part of the United States Department of Labor, is that the unemployment rate fell in May as the number of people with jobs rose.

Specifically, the number of employed people rose from 133,403,000 in April to 137,242,000 in May (2.9 percent). The number of unemployed persons fell from 23,078,000 to 20,985,000 (9.1 percent). The civilian labor force rose from 156,481,000 to 158,227,000 (1.1 percent).

These numbers produced an unemployment rate of 13.3 percent, down from 14.7 percent in April. This data is from the household survey, which counts people.

From the establishment survey, which counts jobs, the number of nonfarm jobs rose from 130,403,000 in April to 132,912,000 in May, an increase of 2,509,000 jobs (1.9 percent).

This is great news, and many forecasts called for job losses in the range of eight million instead of the 2.51 million gained.

A few notes of caution: The BLS figures are estimates gathered by surveying a sample of households and business firms. They are subject to both sampling and nonsampling errors. BLS has told of impacts on data collection and estimation methodology due to the pandemic, and there could be errors in both.

The uncertainly in gathering data is illustrated by private forecasts of a loss of many jobs instead of the gain estimated by BLS. Further, the survey conducted by the payroll processing firm ADP estimated a loss of 2.76 million jobs in May — quite a difference from the gain of 2.51 million jobs estimated by BLS.

Generally, the BLS and ADP estimates are close to each other. The ADP estimate is a respected report that is watched closely. The numbers for May were released on Wednesday, two days before the BLS release.

The ADP estimate — a loss of 2.76 million jobs — was viewed as a positive outcome, as many forecasts called for much larger losses. When interviewed on Fox Business News Wednesday, White House Senior Adviser and former Chairman of the Council of Economic Advisers Kevin Hassett said this of the ADP estimate:

This number so much below expectation or what you would get if you built up from the claims data that I wonder about it. And I’ll go back to my desk and study it. But I — I — the number is so good, it’s such good news, that I really have to dig deep into it and see if there’s not something funny going on because that’s pretty far removed from what we would get if we just added up the claims data and so on from the last survey week. (emphasis added)

So at least one economist in the Trump administration must be surprised at the BLS estimate.

BLS data is subject to two monthly revisions. For example, the report released the first Friday in May gave 131,045,000 as the number of nonfarm jobs in April. Today’s report revised that to 130,403,000, a value 642,000 lower (0.49 percent). The March report gave 151,786,000 for the number of jobs in that month. That has been revised to 151,090,000, a value 696,000 lower (0.46 percent).