Thursday, September 24, 2020

Measuring the Real Effect of COVID-19 on Employment

By on August 26, 2020

By Dr. Ricardo Fuentes, economist, Financial Oversight and Management Board

The Puerto Rico Department of Labor and Human Resources (PRDLHR) published last Friday the results of the monthly Labor Force Survey. Unfortunately, while the agency’s publication included various estimates and analysis, most public discussion has focused only on one element of the publication — the reported unemployment rate of 7.3% for July 2020. Focusing solely on that number understates the real extent of economic hardship caused as a result of the pandemic and is insufficient to ascertain the true effect on the Puerto Rico economy. 

For example, the 7.3% unemployment rate only reflects the 76,000 individuals who have responded to surveys acknowledging both that they were out of work and actively looking for a job during the past four weeks. Similar to the adjustment made by surveyors in the U.S. states, PRDLHR also included in their monthly report an unemployment rate including those who are furloughed or are temporarily not working due to COVID-19 related reasons. When PRDLHR includes these additional 97,000 individuals, the unemployment rate is 16.6%. That rate is the most comparable to the rate being reported for the U.S. states. It has improved since the onset of the pandemic; however, this 16.6% unemployment rate still represents a significant portion, or 29%, of private sector wage and salary employment. The sectors who have reported the highest lob joss are understandably leisure & hospitality and retail trade.  

Nevertheless, even the 16.6% unemployment rate falls short when trying to gauge the extent of how the pandemic has impacted the labor force. Including those who were partially unemployed, those discouraged from actively seeking employment, and those who were self-employed and unable to work because of the pandemic results in an unemployment rate of over 34%, or about 354,000 individuals. This number is most closely comparable to the projections in the Certified Fiscal Plan for Puerto Rico, which projected 35.8% unemployment for July.  Furthermore, as of August 14, approximately 550,000 people were collecting unemployment benefits under one or other of the various available programs. At least one of the new Federal unemployment benefit programs related to COVID enabled many who were not formally in the labor force to claim and receive benefits.  In total, this figure is alarming, for it is the equivalent of 53% of the formal labor force, estimated at 1,042,000 individuals as of July, of which 192,000 were employed in the Public Sector.

Which unemployment rate to focus on matters a lot when we are trying to understand the economy now and the implications of various policy choices going forward.  For example, understanding the nature and characteristics of those seeking unemployment insurance support should tell us something about what types of workforce development programs we should be developing to give people the skills they need to rejoin the workforce.  Understanding the types of employers who were forced to furlough or even downsize their work staff should tell us something about how to craft the small business support programs funded by the CARES Act funding the Government has received. With these objectives in mind, the Oversight Board will continue to analyze in detail the labor market during the pandemic, and calls on all public, private, and academic stakeholders to similarly engage with the available data. The people of Puerto Rico deserve a policy agenda built upon deep analysis to ensure all have an opportunity to recover from the impact the pandemic has had on our lives.

Ricardo Fuentes is the economist of the Financial Oversight and Management Board for Puerto Rico.