More Than Six Million Americans Dropped Out of the Labor Force Between February and May 2020 and Weren’t Counted Just Now in the Unemployment Rate

The U.S. Labor Department’s Bureau of Labor Statistics just issued its May employment report for the nation, and surprised forecasters by showing a 2.5 million gain in payroll employment and a 13.3% unemployment rate, a drop from 14.7% unemployment in April 2020. The Department acknowledged the improvement was taking place in the context of the previous loss of 22 million jobs in March and April.

Nonetheless there was some relief that the pace of economic destruction had eased. Analysts pointed out the many flaws in the report that failed to measure the extent of economic pain Americans were experiencing, but one of those flaws got little attention: the dramatic drop in the number of people even in the labor force at all.

Here’s the employment report from the household survey, which is released along with the payroll employment report (Source: BLS Household Survey, June 5th,2020):

The survey shows the labor force fell by 6.3 million people between February and May, from 164.5 million to 158.2 million, and the labor force participation rate fell from 63.4% to 60.8%. Employment fell from 158.7 million to 137.2 million, more than 21 million. The surveys only count those in the labor force who are employed or who actively sought work in the preceding four weeks; if you weren’t in those categories you would not be in the unemployment rate.But if the same number of people had been in the labor force in May than had been in the labor force in February, 164 million, the unemployment rate would have risen to 16.6% if those six million Americans had not dropped out.

The drop in the number of people in the labor force was just one of the flaws in the Labor Department’s report that under-appreciated American economic pain. The New York Times did a full-page article on what was left out with the 13.3% unemployment rate report that could have brought the unemployment rate up to 27%, a doubling, by other measures.

The Labor Department itself acknowledged some workers could have been misclassified as employed even though they described themselves to the survey takers as on “temporary layoff. ” There were 4.9 million of them. There were 9 million people who were not in the labor force but currently want a job. Many of those persons could be the recent drop-outs. And finally, the number of persons who are involuntarily working part-time rose from 4 million in February to 10 million in May (Table A-8, BLS, June 5, 2020).

The sum of all these workers, plus those in the 13.3% unemployed in the official report, added up to the 27% unemployed, or under-employed.

Although many economists described the modest improvement as resulting from the actions Congress took in its stimulus packages to rescue the economy, such as the Payroll Protection Program and the Unemployment Benefits package, some Republicans were using the improvement to suggest it was no longer necessary to continue government rescue efforts, most of which expire at the end of July.

Efforts to pull the plug now on government support are likely to be economically catastrophic. Among the sectors still losing jobs were government in May, which lost 585,000 jobs, a trend likely to accelerate as state and local government cutbacks continue due to COVID-19’s economic impact.