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

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  • Shuaizhang Feng
  • Yingyao Hu

Abstract

Using recent results in the measurement error literature, we show that the official U.S. unemployment rate substantially underestimates the true level of unemployment, due to misclassification errors in the labor force status in the Current Population Survey. During the period from January 1996 to August 2011, the corrected monthly unemployment rates are between 1 and 4.4 percentage points (2.1 percentage points on average) higher than the official rates, and are more sensitive to changes in business cycles. The labor force participation rates, however, are not affected by this correction.

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Bibliographic Info

Paper provided by The Johns Hopkins University,Department of Economics in its series Economics Working Paper Archive with number 595.

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Date of creation: May 2012
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Handle: RePEc:jhu:papers:595

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  1. Henry S. Farber, 1999. "Alternative and Part-Time Employment Arrangements as a Response to Job Loss," NBER Working Papers 7002, National Bureau of Economic Research, Inc.
  2. Dean R. Hyslop, 1999. "State Dependence, Serial Correlation and Heterogeneity in Intertemporal Labor Force Participation of Married Women," Econometrica, Econometric Society, vol. 67(6), pages 1255-1294, November.
  3. Hu, Yingyao, 2008. "Identification and estimation of nonlinear models with misclassification error using instrumental variables: A general solution," Journal of Econometrics, Elsevier, vol. 144(1), pages 27-61, May.
  4. Farber, Henry S, 1999. "Alternative and Part-Time Employment Arrangements as a Response to Job Loss," Journal of Labor Economics, University of Chicago Press, vol. 17(4), pages S142-69, October.
  5. Thierry Magnac & Michael Visser, 1998. "Transition Models with Measurement Errors," Working Papers 98-22, Centre de Recherche en Economie et Statistique.
  6. Peracchi, Franco & Welch, Finis, 1995. "How representative are matched cross-sections? Evidence from the Current Population Survey," Journal of Econometrics, Elsevier, vol. 68(1), pages 153-179, July.
  7. Stephen R. G. Jones & W. Craig Riddell, . "The Measurement Of Unemployment: An Empirical Approach," Canadian International Labour Network Working Papers 09, McMaster University.
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Cited by:
  1. Philip Jung, 2013. "Earnings losses and labor mobility over the lifecycle," 2013 Meeting Papers 771, Society for Economic Dynamics.

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