The Unassuming Economist

From a new Econbrowser by Hie Joo Ahn and James D. Hamilton:

“We conclude that the true unemployment rate in the U.S. is 1.9% higher on average than the published estimates.”

“We also conclude that the Bureau of Labor Statistics has underestimated the labor-force participation rate by 2.2% on average and that the fall in participation has been slower than suggested by the BLS estimates.”

“On the other hand, we find that reported average unemployment durations significantly overstate the average length of an uninterrupted spell of unemployment. A big factor in this appears to be the fact noticed by Kudlyak and Lange (2018) that some individuals include periods when they were briefly employed but nonetheless looking for a better job when they give an answer to how many weeks they have been actively looking for a job.”

“Here is our paper’s conclusion:

The data underlying the CPS contain multiple internal inconsistencies. These include the facts that people’s answers change the more times they are asked the same question, stock estimates are inconsistent with flow estimates, missing observations are not random, reported unemployment durations are inconsistent with reported labor-force histories, and people prefer to report some numbers over others. Ours is the first paper to attempt a unified reconciliation of these issues. We conclude that the U.S. unemployment rate and labor-force continuation rates are higher than conventionally reported while the average duration of unemployment is considerably lower.”