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


  • Shuaizhang Feng
  • Yingyao Hu


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.

Suggested Citation

  • Shuaizhang Feng & Yingyao Hu, 2012. "Misclassification Errors and the Underestimation of the U.S. Unemployment Rate," Economics Working Paper Archive 595, The Johns Hopkins University,Department of Economics.
  • Handle: RePEc:jhu:papers:595

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    References listed on IDEAS

    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. Stephen R. G. Jones & W. Craig Riddell, 1999. "The Measurement of Unemployment: An Empirical Approach," Econometrica, Econometric Society, vol. 67(1), pages 147-162, January.
    3. 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.
    4. Thierry Magnac & Michael Visser, 1999. "Transition Models With Measurement Errors," The Review of Economics and Statistics, MIT Press, vol. 81(3), pages 466-474, August.
    5. 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.
    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. Abowd, John M & Zellner, Arnold, 1985. "Estimating Gross Labor-Force Flows," Journal of Business & Economic Statistics, American Statistical Association, vol. 3(3), pages 254-283, June.
    8. 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 142-169, October.
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    Cited by:

    1. Elsby, Michael W.L. & Hobijn, Bart & Şahin, Ayşegül, 2015. "On the importance of the participation margin for labor market fluctuations," Journal of Monetary Economics, Elsevier, vol. 72(C), pages 64-82.
    2. Jung, Philip & Kuhn, Moritz, 2012. "Earnings losses and labor mobility over the life-cycle," MPRA Paper 40287, University Library of Munich, Germany.
    3. repec:eee:ecolet:v:155:y:2017:i:c:p:19-23 is not listed on IDEAS
    4. Ng, Travis, 2014. "Bailing outsourcing," Journal of Comparative Economics, Elsevier, vol. 42(4), pages 983-993.
    5. repec:eee:jcecon:v:45:y:2017:i:2:p:304-324 is not listed on IDEAS
    6. repec:eee:econom:v:200:y:2017:i:2:p:154-168 is not listed on IDEAS
    7. Shuaizhang Feng & Yingyao Hu & Robert Moffitt, 2015. "Long Run Trends in Unemployment and Labor Force Participation in China," NBER Working Papers 21460, National Bureau of Economic Research, Inc.
    8. repec:eee:econom:v:200:y:2017:i:2:p:295-311 is not listed on IDEAS
    9. Hyslop, Dean R. & Townsend, Wilbur, 2017. "Employment misclassification in survey and administrative reports," Economics Letters, Elsevier, vol. 155(C), pages 19-23.
    10. Gospodinov, Nikolay & Komunjer, Ivana & Ng, Serena, 2014. "Minimum Distance Estimation of Dynamic Models with Errors-In-Variables," FRB Atlanta Working Paper 2014-11, Federal Reserve Bank of Atlanta.
    11. Lu, Ruichang & Luo, Yao & Xiao, Ruli, 2014. "An MPEC estimator for misclassification models," Economics Letters, Elsevier, vol. 125(2), pages 195-199.
    12. Yingyao Hu, 2015. "Microeconomic models with latent variables: applications of measurement error models in empirical industrial organization and labor economics," CeMMAP working papers CWP03/15, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
    13. Ragui Assaad & Caroline Krafft & Shaimaa Yassin, 2016. "Comparing Retrospective and Panel Data Collection Methods to Assess Labor Market Dynamics," Working Papers 994, Economic Research Forum, revised Apr 2016.

    More about this item

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure

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