May 2020 Unemployment Outlook is Gloomy for Economy and Blacks

The country will be fortunate if it can escape having 15% unemployment and 20% Black unemployment when the Labor Department releases the Jobs Report on the first Friday of May. While there are some nuances, the math is simple. To calculate the unemployment rate, divide the total number of people who are unemployed (but would like to work) by the size of the civilian labor force (person 16 years of age or older who are either employed or unemployed).

The April jobs report gave the numbers for the month of March. It indicated the civilian labor force had 163 million people. There were 7.1 million unemployed persons during the month. Dividing the number unemployed by the civilian labor force (7.1 million/163 million) gives an unemployment rate of 4.4%. The percentage increased from 3.5% in February.

However, that was before the COVID shutdown of the economy – an action necessary to save lives and avoid social chaos. Over the last four weeks, the closure increased unemployment claims by 22 million. Essentially, this means that 22 million more people are now unemployed than was the case in March. These newly unemployed people would like to have a job, which is a condition of eligibility for unemployment compensation. This means they are still counted in the civilian labor force, along with the 7.1 million people who were previously unemployed.

To get an idea of the worst-case scenario for the May unemployment rate, simply add 7.1 million persons previously unemployed to 22 million persons newly unemployed and we have 29.1 million – an astounding number. It assumes none of the previously unemployed persons find new jobs. The size of the civilian labor force will likely change some (probably decrease as people get discouraged about their ability to find a new job). But this change will not be very significant. Hence, division gives us 29.1 million/163 million = 17.8%.

What could make the situation better than the worst-case? If some unemployed people are able to find jobs, the rate would not be as high. Jobs are expanding in the gig economy, transportation and distribution, COVID designated essential industries, and others related to online ordering. Also, if the monthly survey of unemployed persons occurred before all 22 million new unemployment claims were filed, the rate would be lower. At the same time, the unemployment rate could be higher if large numbers of people get discouraged and simply dropped out of the labor market. The size of the civilian labor force would decrease, and the unemployment rate would increase. Taking these factors into consideration, its reasonable to expect an unemployment rate of about 15%.

One last important point. Since the Black unemployment rate (currently 6.7%) is typically 1.5 to 1.7 times higher than is the total unemployment rate, we might expect to see that rate reach somewhere close to 20%.  The only thing that might keep it lower is so many Blacks are working in the gig economy and essential service industries in larger percentages. This accounts for why they have such an extraordinarily high death rate from COVID-19.

Put in historical perspective, the highest unemployment rate during the Great Depression was 25%. It is a rate that is not unthinkable today, if the federal response to COVID continues to be as disjointed and uncoordinated in the future as it has been up to now. Opening up the economy without having extensive testing, tracing, and isolating capabilities simply means we must shut down again in the future. That new shutdown would take place in an environment of more deaths and where the government has less fiscal and monetary rescue capability.

About Thomas_Danny_Boston 27 Articles
Danny Boston is an economist, writer, and entrepreneur. He is professor emeritus of Economics and International Affairs at Georgia Tech and for 25 years served as CEO of EuQuant, an economic research company. Today, Danny publishes the blog GazelleIndex.