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Measuring Labor-Force Participation and the Incidence and Duration of Unemployment

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Abstract

The underlying data from which the U.S. unemployment rate, labor-force participation rate, and duration of unemployment are calculated contain numerous internal contradictions. This paper catalogs these inconsistencies and proposes a reconciliation. We find that the usual statistics understate the unemployment rate and the labor-force participation rate by about two percentage points on average and that the bias in the latter has increased since the Great Recession. The BLS estimate of the average duration of unemployment overstates by 50% the true duration of uninterrupted spells of unemployment and misrepresents what happened to average durations during the Great Recession and its recovery.

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  • Hie Joo Ahn & James D. Hamilton, 2019. "Measuring Labor-Force Participation and the Incidence and Duration of Unemployment," Finance and Economics Discussion Series 2019-035, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgfe:2019-35
    DOI: 10.17016/FEDS.2019.035
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    Cited by:

    1. Chodorow-Reich, Gabriel & Coglianese, John, 2021. "Projecting unemployment durations: A factor-flows simulation approach with application to the COVID-19 recession," Journal of Public Economics, Elsevier, vol. 197(C).
    2. Jessica Gallant & Kory Kroft & Fabian Lange & Matthew J. Notowidigdo, 2020. "Temporary Unemployment and Labor Market Dynamics During the COVID-19 Recession," NBER Working Papers 27924, National Bureau of Economic Research, Inc.

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    More about this item

    Keywords

    Labor-Force Participation Rate; Measurement Errors; Unemployment Duration; Unemployment Rate;
    All these keywords.

    JEL classification:

    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers

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