Reconciling Unemployment Claims with Job Losses in the First Months of the COVID-19 Crisis

In the spring of 2020, many observers relied heavily on weekly initial claims for unemployment insurance benefits (UI) to estimate contemporaneous reductions in US employment induced by the COVID-19 pandemic. Though UI claims provided a timely, high-frequency window into mounting layoffs, the cumulative volume of initial claims filed through the May reference week substantially exceeded realized reductions in payroll employment and likely contributed to the historically large discrepancy between consensus expectations of further April-to-May job losses and the strong job gains reflected in the May employment report. Analyzing the relationship between UI claims and underlying employment, we argue that insured unemployment—an alternative high-frequency indicator that responds to gross job gains as well as gross job losses—offers important advantages as a barometer of labor market conditions. Adjusting for reporting artifacts and for time lags between employment flows and associated claims, we show that insured unemployment comoved strongly with payroll employment throughout the first months of the pandemic, as it did during the Great Recession.