Unemployment continues to fall, but US labor market problems run deep

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

August 7, 2020

Unemployment continues to fall, but US labor market problems run deep

The official employment rate fell again in July, from 11.1 percent in June to 10.2. However, improvement has slowed from the initial recovery in May and June. In prior months, the labor force participation rate increased as the official unemployment rate fell as more workers actively sought work. In July, labor force participation fell slightly, despite continued reduction in unemployment, indicating 4.7 million more people without employment did not look for work than in February and were counted as neither employed nor unemployed. This drop in participation is a potential warning sign about the sustainability of continued labor market improvements in the coming months.

The realistic unemployment rate fell slightly faster than the official employment rate in July due to improvements in reducing misclassification errors. But as in prior months, the official unemployment rate continues to understate real unemployment, counting an extra 1.4 million people who were “not at work for other reasons” as employed.

The full recall employment rate, the unemployment rate if the 8.4 million additional workers on temporary layoff since February returned to work immediately, remained unchanged from June. These data suggest temporary labor market problems run deep, and the United States is likely to have a recessionary level unemployment for some time to come.

This PIIE Chart was adapted from Jason Furman’s blog post, "US unemployment rate falls again but still little progress for people who have not been temporary furloughed from their jobs.”

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Jason Furman Senior Research Staff
Wilson Powell III Former Research Staff

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