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Measuring Resource Utilization in the Labor Market

Author

Listed:
  • Hornstein, Andreas

    (Federal Reserve Bank of Richmond)

  • Kudlyak, Marianna

    (Federal Reserve Bank of Richmond)

  • Lange, Fabian

    (McGill University)

Abstract

In the U.S. labor market unemployed individuals that are actively looking for work are more than three times as likely to become employed as those individuals that are not actively looking for work and are considered to be out of the labor force (OLF). Yet, on average, every month twice as many people make the transition from OLF to employment than do from unemployment to employment. These observations on labor market transitions suggest that the standard unemployment rate and its extensions proposed by the Bureau of Labor Statistics are both too coarse and too narrow as measures of resource utilization in the labor market. These measures are too narrow since they exclude a large part of the population that is potentially employable, and they are too coarse since they assume the same labor force attachment for all nonemployed individuals. We construct a measure of resource utilization in the labor market, a nonemployment index, that is both comprehensive and accounts for differences in labor force attachment. Prior to 2007, the standard unemployment rate was highly correlated with our nonemployment index but, during the recession of 2007--09 and its aftermath, the standard unemployment rate overstated the extent of underutilization in the labor market.

Suggested Citation

  • Hornstein, Andreas & Kudlyak, Marianna & Lange, Fabian, 2014. "Measuring Resource Utilization in the Labor Market," Economic Quarterly, Federal Reserve Bank of Richmond, issue 1Q, pages 1-21.
  • Handle: RePEc:fip:fedreq:00013
    as

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    References listed on IDEAS

    as
    1. Kudlyak, Marianna & Lange, Fabian, 2014. "Measuring Heterogeneity in Job Finding Rates Among the Nonemployed Using Labor Force Status Histories," IZA Discussion Papers 8663, Institute for the Study of Labor (IZA).
    2. Flinn, Christopher J & Heckman, James J, 1983. "Are Unemployment and Out of the Labor Force Behaviorally Distinct Labor Force States?," Journal of Labor Economics, University of Chicago Press, vol. 1(1), pages 28-42, January.
    3. Sam Schulhofer-Wohl & Robert Hall, 2014. "Measuring Matching Efficiency with Heterogeneous Jobseekers," 2014 Meeting Papers 368, Society for Economic Dynamics.
    4. Lawrence F. Katz & Kevin M. Murphy, 1992. "Changes in Relative Wages, 1963–1987: Supply and Demand Factors," The Quarterly Journal of Economics, Oxford University Press, vol. 107(1), pages 35-78.
    5. Kory Kroft & Fabian Lange & Matthew J. Notowidigdo, 2013. "Duration Dependence and Labor Market Conditions: Evidence from a Field Experiment," The Quarterly Journal of Economics, Oxford University Press, vol. 128(3), pages 1123-1167.
    6. Alan B. Krueger & Judd Cramer & David Cho, 2014. "Are the Long-Term Unemployed on the Margins of the Labor Market?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 45(1 (Spring), pages 229-299.
    7. Hornstein, Andreas & Kudlyak, Marianna & Lange, Fabian & Sablik, Timothy, 2014. "Does the Unemployment Rate Really Overstate Labor Market Recovery?," Richmond Fed Economic Brief, Federal Reserve Bank of Richmond, issue June, pages 1-5.
    8. Stefan Eriksson & Dan-Olof Rooth, 2014. "Do Employers Use Unemployment as a Sorting Criterion When Hiring? Evidence from a Field Experiment," American Economic Review, American Economic Association, vol. 104(3), pages 1014-1039, March.
    9. Peter Diamond, 2013. "Cyclical Unemployment, Structural Unemployment," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 61(3), pages 410-455, August.
    Full references (including those not matched with items on IDEAS)

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. How healthy is the labor market, really?
      by ? in FRED blog on 2016-01-25 20:00:22

    Citations

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    Cited by:

    1. Kudlyak, Marianna & Lange, Fabian, 2014. "Measuring Heterogeneity in Job Finding Rates Among the Nonemployed Using Labor Force Status Histories," Working Paper 14-18, Federal Reserve Bank of Richmond.
    2. repec:fip:fedfel:00137 is not listed on IDEAS
    3. Daniel Borowczyk-Martins & Etienne Lalé, 2016. "The Rise of Part-time Employment," Sciences Po publications 2016-04, Sciences Po.
    4. repec:fip:fedreq:00046 is not listed on IDEAS
    5. Daniel Borowczyk-Martins & Etienne Lalé, 2018. "The welfare effects of involuntary part-time work," Oxford Economic Papers, Oxford University Press, vol. 70(1), pages 183-205.
    6. Hornstein, Andreas & Kudlyak, Marianna, 2016. "Generalized Matching Functions and Resource Utilization Indices for the Labor Market," Economic Quarterly, Federal Reserve Bank of Richmond, issue 2Q, pages 105-126.
    7. Williams, John C., 2017. "Monetary Policy's Role in Fostering Sustainable Growth," FRBSF Economic Letter, Federal Reserve Bank of San Francisco.

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