Economics research team says COVID-19 unemployment rates may be underestimated

CATEGORIES: News, Research

The COVID-19 pandemic has infiltrated every aspect of American life, including jobs. Not since the Great Depression have employment numbers looked so bleak. In February, prior to the COVID-19 pandemic, the U.S. Bureau of Labor Statistics (BLS) reported that the nation’s unemployment figures were just under 4%. By April, the rate soared to 14.7%. But those numbers may not tell the whole story.

Research recently conducted by Iowa State University researchers Seung Jin Cho, economics graduate student, and John Winters, associate professor of economics, suggests that reported unemployment rates underestimate actual employment losses due to COVID-19. Furthermore, the study shows that those most adversely impacted by pandemic job losses are young adults ages 16 to 24, people with less education, individuals with lower family income, Hispanics and Blacks.

“The economic pain is widespread but not equally spread,” Winters said.

One of the problems with the publicized unemployment rate, according to Winters, is that it excludes individuals who want to work but who are currently not working or looking for work. And, in April 2020, there was a substantial increase in the number of people who reported they were employed but physically absent from work due to COVID-19 shut downs. The BLS acknowledged that these individuals should have been classified as unemployed or on temporary layoff, but they were not, further skewing the unemployment results.

Re-examining the numbers

In an effort to understand the true impact of COVID-19 on jobs, Cho and Winters, went beyond just an annual unemployment comparison between January-April 2019 and January-April 2020. Instead, they examined the data from the Current Populations Survey using an employed-at-work rate, which includes people who worked from home; those who worked away from home for any amount of time and earned an income; and individuals who worked at least 15 hours of unpaid time for a family business, such as a teenager on a family farm.

Specifically, Cho and Winters assumed the strong, pre-pandemic employment-at-work rate in January 2020 would have continued through April 2020 had COVID-19 not occurred. Therefore, they define the employment-at-work rate for April 2020 as the April 2019 rate plus the year-to-year difference for January 2019 and January 2020.

“Our approach is conceptually similar to the standard employment-population ratio but accounts for the exceptional increase in persons with a job but absent from work during the pandemic,” Winters said.

And they found some discrepancies. The employment-at-work rate decreased by 1.4% between March 2019 and March 2020, and subsequently decreased 12.2% from April 2019 to April 2020. This ratio also showed the impact was widespread across all categories, including income, education, age, race/ethnicity and gender.

Cho and Winters found that individuals in low-income and low-education categories experienced higher job losses than those with higher incomes and more education. However, individuals aged 16 to 24 experienced the greatest decline in employment — a 37.5% decrease — due to COVID-19. Hispanics and Blacks also experienced greater unemployment than whites.

Accurately identifying the groups most severely impacted by COVID-19 unemployment is key to creating future policy, Winters said.

“COVID-19 has imposed startling and widespread job losses, and those most severely affected are the young, less educated, lower income and racial/ethnic minorities,” he said. “The policy community should be fully aware that already vulnerable groups have suffered the worst job losses. Policies should reflect these disproportionate burdens.”

Second study shows COVID-19 impact on urban areas

In a separate study, Cho and Winters, along with Iowa State economics graduate student Jun Yeong Lee, also recently examined the effects of the COVID-19 pandemic on employment losses across metropolitan areas. They discovered that non-metropolitan and metropolitan areas of all sizes experienced significant employment losses, but the impacts were much greater in larger cities. Employment losses manifested as increased unemployment, labor force withdrawal and temporary absences from work.

The team also examined the characteristics of numerous metropolitan areas to explain the variety of employment losses. They found that the local COVID-19 infection rate is a major driver of differences across metropolitan statistical area size. Industry mix and employment density also matter. In short, they determined that the COVID-19 pandemic has significantly altered urban economic activity.