US unemployment fell below 10 percent for the first time since March

Jason Furman (PIIE) and Wilson Powell III (Harvard Kennedy School)

September 4, 2020
US unemployment fell below 10 percent for the first time since March

The official unemployment rate fell to 8.4 percent in August, marking the first time the unemployment rate has dropped below 10 percent since the COVID-19 pandemic began. As in prior months, the official rate understates the scale of the problem; however, the misclassification error continued to shrink.

The realistic unemployment rate fell faster than the official employment rate in August because of improvements in reducing the misclassification error. In July, the official unemployment rate counted an extra 1.4 million people who were "not at work for other reasons" as employed. In August, this misclassification error applied to 1.1 million people.

Between February and August, an additional 3.7 million people without employment did not look for work and were not counted as unemployed in the official rate. While labor force participation normally falls when the unemployment rate is high, this unusually large reduction in labor force participation suggests that some people leaving the labor force may have done so because of the unique challenges of searching for a job during the pandemic. The realistic employment rate reclassifies some of these people as unemployed consistent with the historical relationship between unemployment and labor force participation.

The full recall employment rate, the unemployment rate if the additional 5.4 million workers on temporary layoff since February returned to work immediately, was 6.6 percent in August. While this is an improvement from July, this still-elevated rate indicates temporary labor market problems run deep, and the United States, even under a very optimistic scenario, will likely have recessionary level unemployment for some time to come.

This PIIE Chart was adapted from Jason Furman's blog post, "US unemployment rate falls in August as many workers on temporary layoffs return to work."

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Jason Furman Senior Research Staff
Wilson Powell III Former Research Staff