US unemployment is at lowest level since March but remains elevated

The US labor market continued to make incremental progress in January, but the economy remains 11.6 million jobs below its pre-pandemic trend, and unemployment is still elevated. The official measurement of unemployment fell from 6.7 percent in December to 6.3 percent in January. The “realistic” unemployment rate, which adjusts the official unemployment rate to provide a historically comparable measurement, declined slightly from 8.6 percent in December to 8.3 percent. The employment-population ratio, the share of adults that are employed, also increased slightly.

Early in the pandemic, almost all of the increase in unemployment was temporary. Many of the jobless people have returned to work. Others were permanently laid off. Even in the optimistic scenario of workers temporarily laid off going back to work, reflecting what is known as the “full recall” unemployment rate, unemployment would still be high at 6.9 percent. The number of workers on long-term unemployment has increased. Accordingly, any further labor market improvements will require workers permanently laid off going back into the labor market.

This PIIE Chart was adapted from Jason Furman and Wilson Powell III’s blog post, “Unemployment continues to fall but workers still not returning to the labor force.”