On the Robustness of Alternative Unemployment Measures

On the Robustness of Alternative Unemployment Measures

Economics Letters

Shuaizhang Feng, Yingyao Hu, Jiandong Sun

Abstract

The unemployment rate is one of the most important economic indices. This article extends the work of Feng and Hu (2013) and examines the effects of potential misclassifications in labor force statuses on the different Bureau of Labor Statistics (BLS) unemployment measures. Compared to the official US unemployment rate U-3, the broader measure U-6 is more robust to such classification errors in the survey data that are used to calculate unemployment rates. If one prefers the definitions of U-3, then we offer an approach to use reported unemployment measures to proxy for the unobserved true U-3.

Keywords: True unemployment rate; U-3; U-6; Misclassification error