In the aftermath of recent strong gains in jobs, some analysts have been latching onto pandemic-related classification errors to claim the headline unemployment rate is at best distorted to show an overly optimistic picture of the labor market, and at worst a downright lie to try and manipulate public perceptions. These accusations relate to whether a worker who is on temporary leave from a job due to the pandemic should be recorded as "employed but absent from work due to other reasons" or "unemployed on temporary layoff." If a given number of workers affected by the pandemic are classified as the former it makes the unemployment rate look better than if they are classified as the latter.

Thankfully, the Bureau of Labor Statistics has been transparently addressing this in the footnotes of their reports. If all those classified as "employed but absent from work due to other reasons" were reclassified as "unemployed on temporary layoff" in June, the result would have been an unemployment rate of 12.1%, instead of the official 11.1%.



However, its crucial to point out that even though the level of the unemployment rate would have been higher in June, its decline would have been larger. The official rate fell 2.2% in June, from 13.3% to 11.1%. With reclassification, the decline would have been nearly twice as large, falling 4.2% in June, from 16.3% to 12.1%. Given that it's the change in the unemployment rate that matters for financial markets when gauging the strength of the economic recovery, reclassification reinforces the optimistic outlook.

© First Trust Advisors

© First Trust Advisors

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