Wendy Edelberg discusses the impact of the COVID-19 pandemic on employment

On July 1, 2020, Hamilton Project Director Wendy Edelberg joined Congressman James E. Clyburn, Chairman of the Select Subcommittee on the Coronavirus Crisis, along with Jason Furman (of Harvard University) and William E. Spriggs (of the AFL-CIO and Howard University), on a press conference call to discuss the forthcoming jobs report and the need for strong federal action to address the ongoing jobs crisis caused by the coronavirus pandemic. You will find the full text of Edelberg’s remarks below: 

“Good afternoon. Let me thank Chairman Clyburn for inviting me to participate on this call. I am delighted to be taking part in this conversation with my colleagues Bill Spriggs and Jason Furman.

In my view, there are three things to focus on in tomorrow’s Bureau of Labor Statistics (BLS) employment report to assess the health of the labor market: 

1. Total employment and the unemployment rate;  
2. The potential misclassification of some workers in the employment report, which has understated the true extent of unemployment; and 
3. Employment in the state and local government sectors. 

Total Employment and the Unemployment Rate 

Let me start with job losses, where the numbers have been breathtaking. Between March and May, we saw a decline in employment of roughly 20 million jobs on net. Underlying that net change, the number of people who were separated from their jobs could be more than 30 million.  
 
We hope to see some improvement in the aggregate numbers tomorrow, and the unemployment rate will probably continue to fall from its recent peak of almost 15 percent. However, it is critical to keep in mind the scale of the problem. To that end, a better benchmark is the pre-crisis rate: 3.5 percent. I expect that the unemployment rate will be much higher than that level for years to come.

Currently, most of the unemployed are receiving generous unemployment benefits. However, the Federal Pandemic Unemployment Compensation, which provides an additional $600 a week to households during this difficult time, is scheduled to end in a few weeks. After that, wage replacement rates would revert to around 50 percent. If this occurs, the financial hardship for millions of unemployed people and the negative effects for the overall economy would be significant.  

Potential Misclassification of Workers in the Employment Report

I’d also like to address an issue that has captured the attention of many observers: the potential misclassification of workers in recent employment reports. My colleagues at The Hamilton Project and I have been examining this issue, and I encourage you to read a new report we released yesterday on this topic.

The broad story from the official data is right: the unemployment rate rose in March, spiked in April, and fell slightly in May.

But, as BLS has reported – and let me emphasize that the agency has been 100 percent transparent about this issue – the number of people characterized as employed but “absent from work due to other reasons” (which is to say, not because of reasons such as vacation or illness) has spiked in an unusual way. In our analysis, we find that the unemployment rate would be both higher and more accurate if most of those people had instead been classified as being unemployed and on temporary layoff. To give a sense of magnitudes, if all of those were potentially misclassified had been counted as unemployed, the unemployment rate would be about 5 percentage points higher than the official measure in April and about 3 percentage points higher in May.

One issue complicating how these workers would describe their situation is that for some, their employer has reduced their hours to zero but is paying them, perhaps subsidized by the Paycheck Protection Program or the employee retention tax credit. Should they describe themselves as “employed and absent from work due to other reasons” or “unemployed and on temporary layoff”?

Since identifying this issue in the March employment report, BLS has worked to improve the accuracy of recorded responses. That’s why tomorrow, I will be paying close attention to this category of workers. If it appears that more of these workers are categorized as unemployed rather than employed but not working – that on its own would contribute to an increase in the official unemployment rate in June.

Employment in State and Local Government Sectors 

The final number that I will be watching in tomorrow’s jobs report will be employment in the state and local government sectors. As you’re aware, revenue shortfalls and COVID-related spending pressures have been and will continue to be intense for state and local governments.  

Even as we saw net employment gains across most sectors last month, employment continued to decline in the state and local government sectors – falling by about a million people in April and an additional 600 thousand people in May.  

If the federal government does not step in to provide more aid to states, we are on track for a repeat of what we saw in the years following the Great Recession, when state budget shortfalls slowed the economic recovery. 

Conclusion 

These three issues — the rates of employment and unemployment; how the unemployment rate is affected by the classification of those who are employed but had no hours; and what we are seeing in the state and local sectors — will speak volumes about the current and future state of our economy.  

I look forward to answering your questions. Thank you.”