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Discussion Paper
Prospects for the U.S. Labor Market
The unemployment rate in the United States fell from 9.1 percent in the summer of 2011 to 8.3 percent in February. This decline, the largest six-month drop in the unemployment rate since 1984, has surprised many economic forecasters. The decline is even more surprising because recent real GDP growth appears to have been around trend at best, whereas in early 1984, growth was more than 7 percent. Our next six posts in Liberty Street Economics will discuss prospects for the U.S. labor market given this surprisingly quick decline in the unemployment rate. In this opening post, we outline some of ...
Discussion Paper
Inflation and Japan's Ever-Tightening Labor Market
Japan offers a preview of future U.S. demographic trends, having already seen a large increase in the population over 65. So, how has the Japanese economy dealt with this change? A look at the data shows that women of all ages have been pulled into the labor force and that more people are working longer. This transformation of the work force has not been enough to prevent a very tight labor market in a slowly growing economy, and it may help explain why inflation remains minimal. Namely, wages are not responding as much as they might to the tight labor market because women and older workers ...
Working Paper
Adjusted Employment-to-Population Ratio as an Indicator of Labor Market Strength
As a measure of labor market strength, the raw employment-to-population ratio (EPOP) confounds employment outcomes with labor supply behavior. Movement in the EPOP depends on the relative movements of the employment rate (one minus the unemployment rate) and the labor force participation rate. This paper proposes an adjustment to the calculation of the EPOP using individual microdata to account for both individual characteristics and the probability of labor force participation, which can used to assess the strength of the labor market.
Working Paper
The Effects of Unemployment Benefits on Unemployment and Labor Force Participation: Evidence from 35 Years of Benefits Extensions
This paper presents estimates of the effect of emergency and extended unemployment benefits (EEB) on the unemployment rate and the labor force participation rate using a data set containing information on individuals likely eligible and ineligible for EEB back to the late 1970s. To identify these estimates, we examine how exit rates from unemployment change across different points of the distribution of unemployment duration when EEB is and is not available, controlling for changes in labor demand and demographic characteristics. We find that EEB increased the unemployment rate by about ...
Working Paper
Assessing the Change in Labor Market Conditions
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 ...
Working Paper
Trends in Labor Force Participation and Unemployment, 1976-2024
Using CPS microdata, 1976-2024, we estimate trend and cyclical components of unemployment and labor force participation for 44 age-gender-education groups. We fit a parsimonious state-space model in which each series is the sum of latent cohort and time-varying age effects and a latent cyclical factor shared across unemployment and participation, without imposing structural covariates. Aggregating group trends with observed population shares, we find that population aging and educational upgrading explain most long-run movements in aggregate trends, while cohort effects drive large gender ...
Working Paper
Estimating the Trend Unemployment Rate in the Fourth Federal Reserve District
We estimate trend unemployment rates for Ohio, Pennsylvania, Kentucky, and West Virginia, states that span parts of the Fourth District of the Federal Reserve System. Our estimated unemployment rate trend for the District as a whole stood at 5.7 percent in 2020:Q1 compared to a 4.7 percent observed unemployment rate within the District, implying a tight labor market by historical standards.
Discussion Paper
How Have the Euro Area and U.S. Labor Market Recoveries Differed?
The initial phase of the pandemic saw the euro area and U.S unemployment rates behave quite differently, with the rate for the United States rising much more dramatically than the euro area rate. Two years on, the rates for both regions are back near pre-pandemic levels. A key difference, though, is that U.S. employment levels were down by 3.0 million jobs in 2021:Q4 relative to pre-pandemic levels, while the number of euro area jobs was up 600,000. A look at employment by industry shows that both regions had large shortfalls in the accommodation and food services industries, as expected. A ...
Discussion Paper
Okun’s Law and Long Expansions
Economic forecasters frequently use a simple rule of thumb called Okun's law to link their real GDP growth forecasts to their unemployment rate forecasts. While they recognize that temporary deviations from Okun's law may occur, forecasters often assume that sustained reductions in the unemployment rate require robust GDP growth. However, our analysis suggests that Okun's law has not been a consistently reliable tool for predicting the size of declines in the unemployment rate during the last three expansions—a finding that reflects the impact of changes in the labor market since the early ...
Discussion Paper
Labor Force Exits Are Complicating Unemployment Rate Forecasts
What will the unemployment rate be in 2013? Even if you were certain how much the U.S. economy (gross domestic product, or GDP) would grow over the next year or two, it would still be difficult to forecast the unemployment rate over that period. The link between GDP growth and unemployment is complex in part because it depends on how many people decide to work or look for work?that is, the labor force participation rate. In this post, we discuss the recent steep decline in the labor force participation rate and explain how uncertainty regarding the future path of that variable contributes to ...