The pandemic has caused a lot of dislocation. One statistic that bears watching is the unemployment rate. Before the pandemic, the unemployment rate was at a 50 year low of 3.5%. Now that we are coming out of the pandemic, the unemployment rate is back down to 6.1% even though there are still more than 14 million people out of work receiving some form of unemployment assistance. How does that make sense?
First, let’s start with the basics. The unemployment rate that is popularly advertised is known as the U-3 rate. This calculation is the number of people actively looking for work within the last 4 weeks as a percentage of the total labor force (the number of people working plus the number of people actively seeking work). In my opinion, the U-3 rate is overly optimistic. It does not include the discouraged, the underemployed or those who haven’t looked for work in the past 4 weeks. The U-6 rate includes a much wider swath of the population including the underemployed and anyone who has looked for work in the past 12 months. I feel that this is a much better gauge of the true unemployment rate. The current U-6 rate is 9.9%. For comparison, at the peak of the pandemic (April 2020), the U-6 rate was 22.4%. We have made great progress as the economy has opened back up!
So if the U-6 rate is currently at 9.9%, why am I seeing so many “Help Wanted” signs everywhere? This is probably due to the enhanced unemployment benefits that people are receiving. If you lose your job, you are eligible for unemployment benefits for 26 weeks (currently extended for an additional 13 weeks due with the Pandemic Emergency Unemployment Compensation program). Once you have used up your initial 39 weeks, you are then rolled off of the unemployment rolls and put into the Pandemic Unemployment Assistance program.
Due to the pandemic, the federal government has added an additional $300 per week to the regular unemployment benefit. This additional cash benefit is projected to end in September 2021. The additional $300 per week is creating a reverse incentive not to work for those near the bottom of the pay scale. Expect the unemployment rate to rise when the extra benefit ends in September.