Assessing the Change in Labor Market Conditions

RePEc Short ID: pfa146
ORCID iD: 0000-0003-4208-1577

Chung, Hess T.; Fallick, Bruce; Nekarda, Christopher J.; Ratner, David

doi:10.26509/frbc-wp-201438

Working Paper

Assessing the Change in Labor Market Conditions

Abstract: This paper describes a dynamic factor model of 19 U.S. labor market indicators, covering the broad categories of unemployment and underemployment, employment, workweeks, wages, vacancies, hiring, layoffs, quits, and surveys of consumers? and businesses? perceptions. The resulting labor market conditions index (LMCI) is a useful tool for gauging the change in labor market conditions. In addition, the model provides a way to organize discussions of the signal value of different labor market indicators in situations when they might be sending diverse signals. The model takes the greatest signal from private payroll employment and the unemployment rate. Other infl uential indicators include the insured unemployment rate, consumers? perceptions of job availability, and help-wanted advertising. Through the lens of the LMCI, labor market conditions have improved at a moderate pace over the past several years, albeit with some notable variation along the way. In addition, from the perspective of the model, the unemployment rate declined a bit faster over the past two years than was consistent with the other indicators.

Keywords: LMCI; U.S. labor market; dynamic factor models; unemployment rates; employment;

JEL Classification: E24; E66; J20; J6;

https://doi.org/10.26509/frbc-wp-201438