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Misclassification Errors and the Underestimation of U.S. Unemployment Rates

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Author Info

  • Feng, Shuaizhang

    ()
    (Shanghai University of Finance and Economics)

  • Hu, Yingyao

    ()
    (Johns Hopkins University)

Abstract

Using recent results in the measurement error literature, we show that the official U.S. unemployment rates substantially underestimate the true levels of unemployment, due to misclassification errors in labor force status in Current Population Surveys. Our closed-form identification of the misclassification probabilities relies on the key assumptions that the misreporting behaviors only depend on the true values and that the true labor force status dynamics satisfy a Markov-type property. During the period of 1996 to 2009, the corrected monthly unemployment rates are 1 to 4.6 percentage points (25% to 45%) higher than the official rates, and are more sensitive to changes in business cycles. Labor force participation rates, however, are not affected by this correction. We also provide results for various subgroups of the U.S. population defined by gender, race and age.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5057.

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Length: 40 pages
Date of creation: Jul 2010
Date of revision:
Publication status: published in: American Economic Review, 2013, 103 (2), 1054-70
Handle: RePEc:iza:izadps:dp5057

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Related research

Keywords: Current Population Survey; unemployment rate; labor force participation rate; misclassification; measurement error;

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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. How high in the true US unemployment rate?
    by Economic Logician in Economic Logic on 2010-08-05 14:25:00
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Cited by:
  1. Jung, Philip & Kuhn, Moritz, 2012. "Earnings Losses and Labor Mobility over the Lifecycle," IZA Discussion Papers 6835, Institute for the Study of Labor (IZA).
  2. Michael W.L. Elsby & Bart Hobijn & Ayseg├╝l Sahin, 2013. "On the importance of the participation margin for market fluctuations," Working Paper Series, Federal Reserve Bank of San Francisco 2013-05, Federal Reserve Bank of San Francisco.

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