People line up outside Kentucky Career Center prior to its opening to find assistance with their unemployment claims in Frankfort, Kentucky, June 18, 2020, photo by Bryan Woolston/Reuters

commentary

(The RAND Blog)

What Unemployment Statistics Obscure About Temporary Layoffs

People line up outside Kentucky Career Center prior to its opening to find assistance with their unemployment claims in Frankfort, Kentucky, June 18, 2020

Photo by Bryan Woolston/Reuters

by Kathryn A. Edwards

August 17, 2020

As the broadest COVID-19 shutdowns were underway this spring, a historic number of American workers entered temporary layoff—16.8 million just in April. In a typical month, temporary layoffs represent no more than 15 percent of the unemployed. In April, it was 57 percent.

Those temporary layoffs represent an economy put on pause. What's happened to them since then tells us if it can hit “play” again.

Temporary layoff is a distinct class within government unemployment statistics. If surveyed workers indicate that they will be recalled to their job within six months, they are counted as on temporary layoff—as opposed to permanent layoff. It's the difference between someone waiting for their job to come back versus someone looking for a new job.

Figure 1 shows the number of temporary layoff, permanent layoff, and new entrants among the unemployed since January. Because of survey issues during the pandemic, some workers have been mistakenly categorized as employed but not at work for other reasons; here we include those in the count of temporary layoff.

Figure 1: Unemployment Levels by Composition of Unemployed, January–June 2020

Unemployment levels by composition of unemployed, January to June 2020
Permanent layoff Temporary layoff Entrants
January 5,401,290 1,154,079 318,376
February 5,093,901 1,073,988 318,472
March 5,518,125 3,194,337 273,613
April 12,533,742 16,817,031 197,523
May 12,167,051 12,429,250 251,976
June 11,769,285 7,595,890 430,073

Source: Current Population Survey, January–June Basic Monthly data from IPUMS-CPS.

These segments—temporary and permanent—also reflect two overlapping pandemic-related forces at work. First, the government consciously shut down businesses and sent workers home to contain the virus (the direct effect). At the same time, consumer demand has fallen (the indirect effect). A restaurant, for example, may be closed because it's not an essential business, a direct effect. But a bed-and-breakfast, whether it's allowed to open or not, might not have enough guests to stay afloat, an indirect effect.

In a normal recession, we look to the monthly unemployment rate and the number of new jobs as the barometers of national economic health. But the problem with both of these measurements is that they show the net effect of these direct and indirect effects.

To set useful public policy, we should consider measuring the individual size of each effect. How many jobs are going to come back versus how many are gone for good?

So, back in April, 16.8 million workers said they were waiting for their jobs to come back. What happened to them? As we show in Figure 2, it's not a single story.

Figure 2: Transitions from Temporary Layoff, April–June 2020

Transitions from temporary layoff, April to June 2020
Remained temporary layoff Became employed Moved to permanent layoff Left labor force + Entered temporary layoff
Of the 16,817,000 who were on temporary layoff in April, in May 6,638,000 5,419,000 2,566,000 2,194,000 5,792,000
Of the 12,429,000 who were on temporary layoff in May, in June 3,954,000 4,629,000 2,173,000 1,672,000 3,642,000

Source: Current Population Survey, April–June Basic Monthly data from IPUMS-CPS.

In May, around a third (5.4 million) were working again. But 2.6 million switched to permanent layoff and 2.2 million left the labor force, which is to say they stopped looking for work. The pattern was similar the next month. There were 12.4 million workers on temporary layoff in May. In June, 4.6 million of them were working again, but 2.2 million switched to permanent layoff and 1.7 million left the labor force.

Or, among workers who thought in the spring that their joblessness was temporary: By summer, about a third got called back (or found a new job); about a quarter no longer thought they had a job to return to; and the rest—an astounding 7.6 million workers—were still in limbo.

Twenty percent of permanent layoffs in May and June had been temporary layoffs the month before.

Share on Twitter

Another upshot of this: 20 percent of permanent layoffs in May and June had been temporary layoffs the month before.

This is telling, because it might indicate how much of the controlled shutdown has become an uncontrolled recession.

Analyzing such transitions within unemployment is crucial to understanding what's happening in the labor market right now—and highly relevant for policymakers. The $600 federal supplement to weekly unemployment benefits that ended two weeks ago, for example, served two possible functions. It could have helped people get by until their employers reopened. Or, it could have been directing money to those most likely to spend it and therefore propping up demand in the economy so that more businesses wouldn't permanently close.

If lawmakers believe that all we need to do to restart the economy is turn the lights back on, then perhaps the $600 has a clear expiration. If they think that the economy could be on the verge of contracting further, then perhaps the supplement needs to continue.

Ordinarily, economists would look at prior recessions to benchmark where the economy is in its recovery and compare jobs numbers and unemployment rates over time. But the United States has never had such a large number of temporary layoffs among the unemployed before. Tracking monthly flows from temporary to permanent layoff is one way to gauge the current situation. It might not tell us everything we need to know, but giving up on returning to a prior job or finding a new one—especially when a job used to be waiting for you—is a sign of protracted labor market decline.


Kathryn Anne Edwards is an economist at the nonprofit, nonpartisan RAND Corporation and a professor at the Pardee RAND Graduate School.

Commentary gives RAND researchers a platform to convey insights based on their professional expertise and often on their peer-reviewed research and analysis.