Measuring Resource Utilization in the Labor Market

21 Pages Posted: 31 Jul 2015

See all articles by Andreas Hornstein

Andreas Hornstein

Federal Reserve Bank of Richmond

Marianna Kudlyak

Federal Reserve Bank of San Francisco

Fabian Lange

McGill University

Date Written: 2014

Abstract

In the U.S. labor market unemployed individuals that are actively looking for work are more than three times as likely to become employed as those individuals that are not actively looking for work and are considered to be out of the labor force (OLF). Yet, on average, every month twice as many people make the transition from OLF to employment than do from unemployment to employment. These observations on labor market transitions suggest that the standard unemployment rate and its extensions proposed by the Bureau of Labor Statistics are both too coarse and too narrow as measures of resource utilization in the labor market. These measures are too narrow since they exclude a large part of the population that is potentially employable, and they are too coarse since they assume the same labor force attachment for all nonemployed individuals. We construct a measure of resource utilization in the labor market, a nonemployment index, that is both comprehensive and accounts for differences in labor force attachment. Prior to 2007, the standard unemployment rate was highly correlated with our nonemployment index but, during the recession of 2007-09 and its aftermath, the standard unemployment rate overstated the extent of underutilization in the labor market.

Suggested Citation

Hornstein, Andreas and Kudlyak, Marianna and Lange, Fabian, Measuring Resource Utilization in the Labor Market (2014). FRB Economic Quarterly, vol. 100, no. 1, First Quarter 2014, pp. 1-21. Available at SSRN: https://ssrn.com/abstract=2637429

Andreas Hornstein (Contact Author)

Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States
804-697-8266 (Phone)
804-697-8255 (Fax)

Marianna Kudlyak

Federal Reserve Bank of San Francisco ( email )

101 Market Street
San Francisco, CA 94105
United States

Fabian Lange

McGill University ( email )

1001 Sherbrooke St. W
Montreal, Quebec H3A 1G5
Canada

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