The Measurement of Unemployment: An Empirical Approach

Although the unemployment rate is one of the most widely cited and closely monitored economic statistics, the definition and measurement of unemployment remain controversial. An important issue is whether non-employed persons who display a marginal attachment to the labor force (for example, those who are available for and desire work but are not searching for work) should be classified as unemployed or non-participants. Although this issue has been extensively debated, it has never been tested empirically. This paper carries out empirical tests of this and related hypotheses using a unique longitudinal data set from Canada. We find within the marginally attached a "waiting" group whose behavior indicates that they would be more appropriately classified as unemployed rather than out-of-the-labor force. The remainder of the marginally attached exhibit behavior between that of the unemployed and the balance of non-participants, suggesting that the desire for work among non-searchers conveys substantial information about labor force attachment and future employment status. Our methods also apply to heterogeneity within the unemployed, and we investigate behavioral variation linked to differences in job search methods and reasons for entry into unemployment. Although those using "passive" job search do exhibit behavior somewhat distinct from "active" searchers, our results reject the practice of classifying passive job searchers as out-of-the-labor force. Overall, our results indicate that the non-employed are very heterogeneous, so that any single division into "unemployment" and "out-of-the-labor force" is unlikely to fully capture the variety of degrees of labor force attachment.(This abstract was borrowed from another version of this item.)