If the Economy’s So Bad, Why Is the Unemployment Rate So Low?

Chairman Schumer, Ranking Member Saxton, and distinguished members of the Committee, I appreciate the opportunity to appear before you today to discuss the labor market. The opinions I will express are my own and not those of the organizations with which I am affiliated.

There is much current talk about recession and a wide variety of economic indicators are signaling a major economic slowdown. GDP growth was below 1% last quarter; credit is tight, even with lower interest rates; and consumer confidence is falling. This has generated a conversation about whether the federal government should extend Unemployment Insurance benefits beyond their standard 26 weeks.

Yet, the unemployment rate has remained relatively low in recent months, at or below 5%. At least compared with unemployment in the 1970s and 1980s, this does not seem high and is below the unemployment rate where extended benefits were implemented in the past. I want to argue that this low unemployment rate is somewhat misleading, because the composition of those in the labor market is different than in the past. In fact, there is substantial evidence that the problems of unemployment are at least as bad now as they were at the beginning of the economic slowdown of the early 1990s or the early 2000s, both recessions when extended benefits were enacted.