The Unassuming Economist

A new IMF working paper revisits ” the issue of classification errors in the U.S. Current Population Survey. While the results still support the previous literature’s conclusion that the job finding probability plays a more important role in explaining unemployment fluctuations (“outs of unemployment”) than the job separation probability does (“ins to unemployment”), they moderate the conclusion that “Out Wins”. Moreover, once the proposed adjustment is applied, the importance of the participation margin in explaining unemployment fluctuations becomes smaller than previously argued—around 10 percent in this paper vs previous estimates of 20 to 30 percent (Elsby, Hobijn and Sahin, 2015). Therefore, the misclassification correction procedures in the labor force survey continue to be an important issue in understanding labor market dynamics. The results of this paper suggest that policymakers should pay closer attention to the job separation margin than previously thought and less on the participation margin.”