A provocative new paper argues that US labour market data contains several biases that systematically understate the level of unemployment in the US. The authors find that correcting for the biases results in the US unemployment rate being 2ppt higher on average since 2001.
The Biases to US Labour Data
The Current Population Survey (CPS) is a monthly survey of US households conducted by the Bureau of Labor Statistics (BLS). It is the primary source of labour market statistics for economists, policymakers and investors. According to authors H.J. Ahn and J.D. Hamilton, however, the unemployment rate, labour force participation rate and duration of unemployment calculated from the survey suffer from the following internal inconsistencies:
• Rotation biases arising from disengagement and stigmas associated with being unemployed.
• Missing observations, which are non-random and an increasing source of bias in recent years.
• Number preferences of respondents when providing information on the duration of job search.
• Mismatches between the duration of job search and the labour force status of an individual.
• Inconsistencies between the unemployment hazard rates and reported duration of unemployment.
Fundamentally, these issues imply that if one of the main reported statistics is correct, the other must be incorrect. For example, two equivalent ways of calculating the probability that a person who was unemployed last month and remains unemployed this month are:
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