Generalized Matching Functions and Resource Utilization Indices for the Labor Market

22 Pages Posted: 15 May 2017 Last revised: 30 Aug 2017

See all articles by Andreas Hornstein

Andreas Hornstein

Federal Reserve Bank of Richmond

Marianna Kudlyak

Federal Reserve Bank of San Francisco

Date Written: 2016

Abstract

In the U.S. labor market, unemployed individuals who are actively looking for work are more than three times as likely to become employed than those individuals who 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 make the transition from unemployment to employment. Based on these observations, we have argued in Hornstein, Kudlyak, and Lange (2014) for an alternative measure of resource utilization in the labor market, a nonemployment index (NEI), that is more comprehensive than the standard unemployment rate. In this article, we show how the NEI fits into recent extensions of the matching function (which is a standard macroeconomic approach to model labor markets with frictions), how it affects estimates of the extent of labor market frictions, and how these frictions have changed in the Great Recession.

Keywords: Labor market, utilization, nonemployment index

Suggested Citation

Hornstein, Andreas and Kudlyak, Marianna, Generalized Matching Functions and Resource Utilization Indices for the Labor Market (2016). Economic Quarterly, Issue 2Q, pp. 105-126, 2016. Available at SSRN: https://ssrn.com/abstract=2967785

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

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