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INSIGHTi
COVID-19: How Quickly Will Unemployment
Recover?
Updated November 6, 2020
Because of effects of the Coronavirus Disease 2019 (COVID-19) pandemic, the United States has seen
both high unemployment levels and record rates of change in those levels. This has made it difficult to
forecast unemployment from one month to the next. This Insight discusses the current state of
unemployment, how unemployment might change over the next few years, and what those changes would
mean for the economy.
Current Outlook
COVID-19 and the subsequent public health crisis led to precipitous increases in unemployment and
underemployment. Figure 1 contrasts the official U3 unemployment rate—unemployed workers as a
percentage of the labor force—with the U6 rate, which also includes those working part-time for
economic reasons and discouraged workers. At the height of the 2007-2009 Great Recession, the U3 rate
reached 10% compared with a high of 14.7% in April 2020. (For further explanation of these rates, see
CRS In Focus IF10443, Introduction to U.S. Economy: Unemployment.)
Analysis of changes in employed workers may offer additional, and in some situations more stable,
insights on the state of the labor force. Figure 2 shows that the number of employed workers as a
percentage of the non-institutionalized population decreased substantial y during the pandemic. The
employment-population ratio hit a low of 59.4% during the Great Recession compared with a low of
51.3% in April 2020.
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Figure 1. Unemployment
Figure 2. Employment-Population Ratio
Source: U.S. Bureau of Labor Statistics (BLS).
Source: BLS.
Unemployment Projections
Several government agencies and private companies forecast future unemployment levels along with
other economic indicators. Current projections show persistently high unemployment for the next few
years. Figure 3 compares median annual unemployment projections from the Congressional Budget
Office (CBO), the Federal Reserve, and the Wall Street Journal. The Wall Street Journal surveys more
than 60 economists, providing a sense of private-sector sentiment. CBO unemployment forecasts are
consistently higher than others; however, given the large amount of uncertainty in the economy and
differing assumptions about future policy (CBO assumes no future stimulus), some differences are
expected. Nonetheless, Figure 3 suggests consensus from both the public and private sector that the
effects of COVID-19 on unemployment wil last through 2022, despite the significant gains to
employment seen since April.
Figure 3. Unemployment Rate Projection Comparison
Source: Congressional Budget Office (CBO), Federal Reserve, Wal Street Journal.
Notes: The Federal Reserve and the Wal Street Journal col ect individual projections from different groups of experts. The
Federal Reserve reports the median projection and the Wal Street Journal reports the average projection.
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Economic forecasts include a degree of uncertainty even under more normal circumstances, as they are
dependent on factors such as technological development that are volatile and difficult to measure. Despite
the relative consensus of current projections, there is a large amount of uncertainty in this recession;
economists are relying on public health officials for predictions on the future course of the pandemic that
could, in turn, impact the unemployment situation. In addition, the current recession differs from past
recessions in that it was caused not by an inherently economic or financial shock but by a public health
crisis. Given that the macro-fundamentals prior to the pandemic appeared to be sound, once the cause of
the recession has passed, the economy may quickly return to normal. However, the longer the pandemic
and resulting recession last, the more likely certain effects are to be longer lasting as wel .
Table 1 il ustrates the amount of uncertainty facing the economy presently. The Federal Reserve
projections are put together by surveying board members and bank presidents, who separately provide
estimates based on individual assumptions about monetary policy. As Table 1 shows, the range of these
unemployment projections was larger in both June and September 2020 than in December 2019, meaning
that projections varied by individual more during the recession than prior to it. The range decreased from
June to September, likely due to additional months of data to work with, but stil remains notably larger
than the December range. For example, in December 2019, the range of projections only spanned 0.7
percentage points for 2021, whereas in June 2020 the range of projections spanned 7.5 percentage points
and in September 2020 the range of projections stil spanned 4.0 percentage points. Further il ustrative of
the uncertainty, in September the most optimistic projection shows a rate of unemployment very close to
pre-COVID-19 levels by 2021, whereas the most pessimistic projection predicts the unemployment
situation in 2021 wil be worse than the September 2020 unemployment situation, which was
characterized by an unemployment rate of 7.9%.
Table 1. Range of Federal Reserve Unemployment Projections
2020
2021
2022
September 2020 Projections
6.5 – 8.0
4.0 – 8.0
3.5 – 4.7
June 2020 Projections
7.0 – 14.0
4.5 – 12.0
4.0 – 8.0
December 2019 Projections
3.3 – 3.8
3.3 – 4.0
3.3 – 4.1
Source: Federal Reserve.
When Will the Economy Reach Full Employment?
Many commentators have speculated about the potential for a V-shaped recovery from the COVID-19
recession. Indeed, projections (such as CBO’s) for real GDP growth appear to largely follow this narrative
(see Figure 4)—real GDP is projected to grow over 4% in 2021 and reach pre-COVID levels by 2022.
Even if this occurs, however, it would not be enough to return the economy to full employment quickly—
both unemployment and the output gap, which are closely related, are projected to take much longer to
return to non-recessionary levels. The output gap measures the difference between actual and potential
GDP. As Figure 4 shows, the output gap grew very quickly during the pandemic, and CBO projects that
the economy wil be functioning below full potential through 2030 and, therefore, the economy wil not
see a return to full employment during this decade either. Even in the scenario of a V-shaped recovery, the
United States is likely to feel the economic effects of COVID-19 for years to come.
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Figure 4. Trend of CBO Unemployment and Growth Projections
Source: CBO.
Note: Changes in real GDP are measured relative to projections from the preceding year.
Author Information
Lida R. Weinstock
Analyst in Macroeconomic Policy
Disclaimer
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