Measuring Labor-Force Participation and the Incidence and Duration of Unemployment

Ahn, Hie Joo; Hamilton, James D.

doi:10.17016/FEDS.2019.035

Working Paper

Measuring Labor-Force Participation and the Incidence and Duration of Unemployment

Abstract: The underlying data from which the U.S. unemployment rate, labor-force participation rate, and duration of unemployment are calculated contain numerous internal contradictions. This paper catalogs these inconsistencies and proposes a reconciliation. We find that the usual statistics understate the unemployment rate and the labor-force participation rate by about two percentage points on average and that the bias in the latter has increased since the Great Recession. The BLS estimate of the average duration of unemployment overstates by 50% the true duration of uninterrupted spells of unemployment and misrepresents what happened to average durations during the Great Recession and its recovery.

Keywords: Labor-Force Participation Rate; Measurement Errors; Unemployment Duration; Unemployment Rate;

JEL Classification: C5; J6;

https://doi.org/10.17016/FEDS.2019.035