The Worst Recession On Record, By One Measure

It is tempting to look at the continued recovery of the labor market in July and be encouraged – even if there are indications that August may see a reversal. The unemployment rate of 10.2% is not only well below the peak of 14.7% reached in April, but it is now below the previous post-war peak of 10.8%, reached in 1982.

But one measure of unemployment that the government calculates remains significantly higher than it was in earlier recessions. That is the percentage of the labor force that is unemployed because people were fired or laid off.

In July, the Labor Department reported, 8.1% of the work force was unemployed because they had lost their jobs — not because they quit, or because they were new entrants to the labor market, or reentrants who had earlier left it.

That figure has been calculated since 1967, a period that includes three severe downturns before this one – the 1970’s OPEC-induced worldwide recession, the 1980’s double recession as the Federal Reserve set out to kill inflation regardless of the collateral damage and the Great Recession brought on by the financial crisis that became apparent in 2008.

Never during any of those recessions did that rate go above 6.6%. To be sure, the current figure is down a lot from the 13.2% reached in April, but it is still at a level not seen before this year. The statistic keepers at the Department of Labor call that the U2 rate, while the better known unemployment rate is called U3.

Why is that level so bothersome? These are workers who have gotten used to having jobs and supporting others, many of whom will suffer greatly if they cannot quickly find new jobs. That is why it was so important to have augmented unemployment benefits – a program that will now end if Congress does not act.

One other unemployment indicator – known as U1 to the statisticians — is issuing a warning sign. That is the proportion of the work force that has been unemployed for at least 15 consecutive weeks. When the pandemic recession began, many took for granted that indicator would not be a problem, as a “V” shaped recovery brought quick recovery. Now that seems less likely.

In July, that rate rose to 5%, below the peaks reached in the Great Recession but higher than anything seen in earlier post World War II recessions. In the Great Recession, it took more than a year for the rate to get that high. In this downturn, it took four months.