How Bad? Labor Underutilization in Hawaii During the Pandemic

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By James Mak

The U.S. Bureau of Labor Statistics (BLS) recently issued revised estimates of civilian labor force and unemployment in Hawaii for all of 2020. The new numbers show that in December 2020 Hawaii had the unenviable distinction of having the highest state unemployment rate in the nation (10.3%).  For the entire year, Hawaii’s unemployment rate was the second highest in the nation (11.6%) after Nevada (12.8%). Hawaii led the nation with the highest percentage of its civilian labor force unemployed for 15 weeks or longer (5.3%).  As bleak as it was, Hawaii’s unemployment picture in December had improved substantially since April/May despite drastic restrictions imposed on economic activities in order to curb the spread of the COVID-19 pandemic. The annual average unemployment rate for Hawaii in 2020 was 11.6% versus 2.5% in 2019.

Three months into the new year (2021) Hawaii held stubbornly to the top spot with an unemployment rate of 9% in March followed by New York (8.5%), California and New Mexico (8.3%), and a fast-improving Nevada (8.1%).

Table 1 displays the number of employed and unemployed persons, the civilian labor force, and the official unemployment rate in Hawaii for the months of January 2020 to March 2021. A person who is officially unemployed is still in the labor force. Thus, the number of people employed in January 2020 (659,237) plus the number of people unemployed (13,780) equals the civilian labor force (673,017). January was the low point of unemployment in Hawaii in 2020 when Hawaii registered an unemployment rate of only 2.0%. The effects of the pandemic and subsequent lockdowns beginning in late March on the state’s labor market are quite striking. In April, Hawaii registered an unemployment rate of 21.9% and a sharp decline in the labor force of over 33,500 since March. ^[1] The state’s unemployment rate fell after May, but was briefly reversed in September after the second lock-down was ordered effective August 27. It has been receding again.

Table 1
Hawaii’s Labor Market: 2020 – 2021

Month	# Employed	# Unemployed	Civilian Labor Force	Unemployment Rate (U-3)
January ’20	659,237	13,780	673,017	2.0%
February	658,112	13,789	671,901	2.1
March	657,086	13,993	671,079	2.1
April	497,928	139,635	637,563	21.9
May	498,685	140,209	638,894	21.9
June	549,249	90,108	639,357	14.1
July	551,240	90,605	641,845	14.1
August	552,752	90,683	643,435	14.1
September	519,692	90,426	610,118	14.8
October	553,195	89,920	643,115	14.0
November	588,368	67,544	655,912	10.3
December	588,168	67,419	655,587	10.3
January ’21	588,116	67,650	655,766	10.3
February	595,209	60,144	655,653	9.2
March	590,787	58,750	649,537	9.0
Source: U.S. Bureau of Labor Statistics (BLS) at https://www.bls.gov/web/laus/ststdsadata.txt

BLS’s official unemployment rate (U-3) that’s widely reported in the news media doesn’t provide a comprehensive picture of the state of Hawaii’s labor market. Hawaii’s official unemployment rate of 10.3% in December 2020 understates the true extent of unemployment in the economy. For example, the official unemployment rate doesn’t take into account that many people may be working part-time because their hours have been cut or because they couldn’t find full-time work but are nonetheless counted as being employed. ^[2]

To gain a fuller understanding of unemployment and underemployment in the economy, we have to consult BLS’s broadest measure of labor underutilization, U-6, which includes those who are unemployed, plus those who are working part-time involuntarily, plus those who are “marginally attached” to the labor force. People who are marginally attached to (or on the fringe of) the labor force are those who are neither working nor currently looking for a job but indicate that they want and are available for a job, have looked for one in the past 12 months, but not in the past 4 weeks.  Officially, they are not in the labor force. To simplify, BLS refers to the marginally attached as “people who currently want a job”.

BLS doesn’t issue monthly statistics of labor underutilization at the state level; it publishes only four-quarter moving averages.  For example, data on involuntary part-time employment for the 1st quarter of 2021 (i.e. January-March) is the average of the data from the last three quarters of 2020 and the first quarter of 2021. Hence, it is not possible to track month-to-month, or even quarter-to-quarter, changes in labor underutilization for individual states. The best that we can do is to compare four-quarter averages. ^[3] The four-quarter averages for U-6 and its components for the final three quarters of 2020 and the first quarter of 2021 (Q1 2021) are displayed in Table 2 as well as those for the same four quarters for the previous year (Q1 2020). Recall that the first stay-at-home order was issued near the end of the first quarter of 2020. Thus, Q1 2021 provides a good look at Hawaii’s labor market during the pandemic.

Table 2
U-6 Labor Underutilization in Hawaii: Q1 2021 vs Q1 2020*

	Q1 2021	Q1 2020	Difference	% Change
(a) Civilian Labor Force	643,900	664,100	-20,200	-3.0%
(b) Employed	557,800	646,800	-89,000	-13.8%
(c) Unemployed (U-3)	86,100	17,300	+68,800	+397.7%
(d) Marginally Attached	10,000	6,200	+3,800	+61.3%
(e) Involuntarily Employed Part-Time	47,200	19,500	+27,700	+142.1%
(f) U-6 (persons) = (c) + (d) + (e)	143,300	43,000	+100,300	+233.3%
(g) U-6 (%)={[(c) + (d) + (e)] / [(a) + (d)]} x 100	21.9%	6.4%
Note: (*) Q1 2021 represents average of the final three quarters of 2020 and the first quarter of 2021 (i.e. from April 2020 to March 2021); Q1 2020 represents the average of the final three quarters of 2019 and the 1st quarter of 2020. Source: https://fred.stlouisfed.org/release/tables?rid=353&eid=55696 Data originally from the U.S. Bureau of Labor Statistics (BLS) released on April 23, 2021.

Table 2 shows that between April 2020 and the end of March 2021, the three categories of Hawaii’s working-age population that make up the “underutilized” population (U-6) averaged 143,300 people. That’s 57,200 more than the number of people officially unemployed. In comparison with the same four quarters for the previous year, the number of unemployed and underemployed persons (U-6) in Hawaii more than tripled, increasing by more than 100,000 between the two years; the increase in the number of unemployed accounted for 68.6%; the increase in the number of involuntary part-time workers accounted for 27.6%; and those without a job but want one accounted for the remaining 3.8%. Hawaii led all states with a U-6 rate of 21.9%. Nevada’s U-6 rate followed closely at 21.8%, while the U.S. average rate was 14.5%   

Numbers on underemployment are useful, but they don’t capture the full misery suffered by those who have been victimized through no fault of their own. The economic downturn has hit low wage earners especially hard. The Hawaii labor department’s response to the pandemic has only exacerbated the pain. For thousands of unemployed workers, filing unemployment insurance claims (UI) with the Department of Labor and Industrial Relations (DLIR) has been anything but fast and easy. Kokua Line (Honolulu Star-Advertiser, February 24) tells the horrifying story about why the department refuses to open its unemployment offices. According to its director, the department has no plan to open them soon out of concern for the safety of its employees because they “wouldn’t be able to handle those crowds.” DLIR’s call center has been overwhelmed by phone calls; in response, the department began to block auto-dialed calls in early March.

Then there are those silent, involuntary part-time workers or those who stopped looking for work because they are discouraged after repeated failures at finding a job. How have these people managed to cope with such a sharp drop in employment?  Aloha United Way notes that even before the pandemic 42% of Hawaii households were ALICE (Asset Limited, Income Constrained, Employed) or below, i.e. “hardworking people who have a job yet cannot afford basic necessities to remain stable and self-sufficient.”  The human saga beyond the underemployment numbers remains to be told.

For now, the need is to focus on immediate solutions. The labor department needs to demonstrate more urgency, resolve and creativity to solve this human tragedy. Congress has done its part by passing the next round of economic stimulus package that would provide some financial relief to those who are suffering but not officially unemployed. We need to safely open up the economy which means successfully containing the virus. The good news is that the economy is improving as COVID-19 vaccines are being distributed, and the job market is expected to show further improvement albeit drawn out over the next couple of years. Hawaii also needs to focus on bringing back those who left the labor force but would have preferred to be working.

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[1] In the early months of the pandemic, official U.S. unemployment rates were greatly underestimated because many people mistakenly reported themselves as having left the labor force (and hence were no longer considered unemployed) when they should have reported themselves as being unemployed (and thus still part of the labor force). See Rakesh Kochhar and Jesse Bennett, “U.S. labor market inches back from the COVID-19 shock, but recovery is far from complete,” Pew Research Center, April 14, 2021 at https://www.pewresearch.org/fact-tank/2021/04/14/u-s-labor-market-inches-back-from-the-covid-19-shock-but-recovery-is-far-from-complete/  BLS explains that the misclassification has been reduced in recent months but remains a problem. See https://www.bls.gov/regions/west/news-release/2021/pdf/laborunderutilization_hawaii_20210323.pdf

[2] See also, Rakesh Kochhar, “Unemployment rate is higher than officially recorded, more so for women and certain other groups,” Pew Research Center, June 30, 2020 at https://www.pewresearch.org/fact-tank/2020/06/30/unemployment-rate-is-higher-than-officially-recorded-more-so-for-women-and-certain-other-groups/

[3] Due to differences in methodology, BLS’s alternative measures of labor underutilization for states reports 11.7% as the unemployment rate (U-3) for Hawaii for 2020 and 2.8% for 2019 while its official (measured) unemployment rate for 2020 and 2019 are 11.6% and 2.5%, respectively.