Working Paper: NBER ID: w27394
Authors: Hie Joo Ahn; James D. Hamilton
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 unified 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 over time. The BLS estimate of the average duration of unemployment substantially overstates the true duration of uninterrupted spells of unemployment and misrepresents what happened to average durations during the Great Recession and its recovery.
Keywords: Labor force participation; Unemployment; Duration of unemployment; CPS data; Statistical reconciliation
JEL Codes: E24; E32; J01; J64
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| missing observations (C29) | biases in unemployment and labor force participation rates (J79) |
| misclassification of individuals (J79) | reported job search durations (J64) |
| BLS estimates of unemployment duration (J64) | true duration of uninterrupted unemployment spells (C41) |
| rotation bias (C46) | reported unemployment rates (J64) |
| rotation bias (C46) | labor force participation rate (J49) |