(Reuters) - The official U.S. unemployment rate for April, due out this Friday, will likely vastly understate job destruction from the coronavirus pandemic, so a pair of economists at the Federal Reserve Bank of Chicago set out to create a measure that captures the true extent of labor market losses.
Their estimate: a 'U-Cov' rate in April of somewhere between 25.1% and 34.6%. That's compared to the 16% rate forecast by economists polled by Reuters, who also estimate American employers shed more than 20 million jobs last month.
"The official unemployment rate may only capture a fraction of these losses," Chicago Fed economists Jason Faberman and Aastha Rajan wrote in a blog released Tuesday, describing their proposed U-Cov measure of labor market underutilization.
Many of those newly out of work will not be captured in the traditional U.S. unemployment measure, which counts only those who are out of a job and actively looking for work.
The Labor Department also publishes broader measures to include those working fewer hours than they want to, and people who have looked for work in the past but not recently.
But even such broader measures may miss those who are on unpaid leave and expect to return to their jobs once the crisis has passed, or people who are not searching for jobs because of stay-at-home orders, the Chicago Fed researchers wrote.
"The unique nature of the COVID-19 crisis has led to the furlough of many workers and has also made it difficult for people to look for new work, even if jobs are available," they said. "The evidence suggests that employment losses are likely in the tens of millions, but many individuals are finding it hard to actively look or be available for work and therefore be classified as unemployed."
In charts accompanying the blog, the researchers showed the previous 'U-Cov' high had been just over 20% in the wake of the Great Recession, more than double the 10% high registered by the traditional unemployment rate.