Assessing the Change in Labor Market Conditions

35 Pages Posted: 24 Dec 2014

See all articles by Hess T. Chung

Hess T. Chung

Board of Governors of the Federal Reserve System

Bruce Fallick

Federal Reserve Banks - Federal Reserve Bank of Cleveland

Christopher J. Nekarda

Board of Governors of the Federal Reserve System

David Ratner

Board of Governors of the Federal Reserve System

Multiple version iconThere are 4 versions of this paper

Date Written: December 22, 2014

Abstract

This paper describes a dynamic factor model of 19 U.S. labor market indicators, covering the broad categories of unemployment and underemployment, employment, workweeks, wages, vacancies, hiring, layoffs, quits, and surveys of consumers’ and businesses’ perceptions. The resulting labor market conditions index (LMCI) is a useful tool for gauging the change in labor market conditions. In addition, the model provides a way to organize discussions of the signal value of different labor market indicators in situations when they might be sending diverse signals. The model takes the greatest signal from private payroll employment and the unemployment rate. Other influential indicators include the insured unemployment rate, consumers’ perceptions of job availability, and help-wanted advertising. Through the lens of the LMCI, labor market conditions have improved at a moderate pace over the past several years, albeit with some notable variation along the way. In addition, from the perspective of the model, the unemployment rate declined a bit faster over the past two years than was consistent with the other indicators.

Keywords: LMCI, U.S. labor market, dynamic factor model, unemployment rate, employment

JEL Classification: E24, E66, J20, J6

Suggested Citation

Chung, Hess T. and Fallick, Bruce and Nekarda, Christopher J. and Ratner, David, Assessing the Change in Labor Market Conditions (December 22, 2014). FRB of Cleveland Working Paper No. 14-38, Available at SSRN: https://ssrn.com/abstract=2541732 or http://dx.doi.org/10.2139/ssrn.2541732

Hess T. Chung

Board of Governors of the Federal Reserve System ( email )

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Bruce Fallick (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Cleveland ( email )

East 6th & Superior
Cleveland, OH 44101-1387
United States

Christopher J. Nekarda

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

HOME PAGE: http://chrisnekarda.com

David Ratner

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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