Job numbers for January from the Bureau of Labor Statistics indicated the nation’s unemployment level is about 6.3%. However, the Federal Reserve Chairman said after misclassification errors are factored in, the real unemployment rate is closer to 10%.
“The Bureau of Labor Statistics reports that many unemployed individuals have been misclassified as employed,” Fed Chair Jerome Powell said during a virtual speech for the Economic Club of New York.
“Correcting this misclassification and counting those who have left the labor force since last February as unemployed would boost the unemployment rate to close to 10 percent in January.”
Powell said many unemployed Americans are being misclassified as employed.
The discrepancy has been mentioned before, however the Fed Chair’s acknowledgement of just how much it could impact the true unemployment rate is a stark reminder of the struggling economy.
The Bureau of Labor Statistics flagged possible undercounts in the unemployment rate last year. In May, for example, they noted a “misclassification error” had lowered the overall unemployment rate by 3%, according to the Washington Post.
At the beginning of the coronavirus pandemic, and the stay-at-home orders first impacted businesses, the national unemployment rate peaked at 14.7% in April 2020. However, because of the ongoing “misclassification” errors, this number is believed to be much higher.
For comparison, the national unemployment rate in February 2020, before the pandemic, was just 3.5%, the lowest level in about 50 years.
“The pandemic has led to the largest 12-month decline in labor force participation since at least 1948,” Powell said.
Government estimates say more than 10 million Americans are still out of work, and millions more have stopped looking for work.
Some of those who are unemployed but are not looking for work are parents who are providing full-time child care or are staying home to help children during virtual learning. Others stopped looking for work because of the fear of contracting the coronavirus, especially in jobs that interact in person with customers.
These are also some of the reasons for the misclassification, some believe. If a person leaves the workforce to provide care for a child or relative, they are not necessarily classified as unemployed. Also, if a person is hourly and is waiting to be scheduled for hours by their employer that may be impacted by pandemic business capacity orders, they are not necessarily classified as unemployed. These are just two possible examples that could lead to many Americans being misclassified in the monthly report.