IMF Working Papers Volume 2019 Issue 040: Are Labor Market Indicators Telling the Truth? Role of Measurement Error in the U.S. Current Population Survey (2019)

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Are Labor Market Indicators Telling the Truth? Role of Measurement Error in the U.S. Current Population Survey

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Mr. Ippei Shibata

Mr. Ippei Shibatanull

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Series:: IMF Working Papers

Volume/Issue:: Volume 2019: Issue 040

Publication Date:: 26 Feb 2019

DOI:: https://doi.org/10.5089/9781498300452.001

ISBN:: 9781498300452

ISSN:: 1018-5941

Pages:: 40

Keywords:: WP; Gross Worker Flows; Current Population Survey; Classification Errors; Unemployment; unemployment fluctuation; participation margin; HMM estimate; transition dynamics; employment population ratio; labor force force flow; Labor force; Unemployment rate; Labor markets; Labor flows; Global

Legal-disclaimer:: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Series:: IMF Working Papers

Volume/Issue:: Volume 2019: Issue 040

Language:: English

Publication Date:: 26 Feb 2019

DOI:: https://doi.org/10.5089/9781498300452.001

ISBN:: 9781498300452

ISSN:: 1018-5941

Pages:: 40

Keywords:: WP; Gross Worker Flows; Current Population Survey; Classification Errors; Unemployment; unemployment fluctuation; participation margin; HMM estimate; transition dynamics; employment population ratio; labor force force flow; Labor force; Unemployment rate; Labor markets; Labor flows; Global

Legal-disclaimer:: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

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Labor market indicators are critical for policymakers, but measurement error in labor force survey data is known to be substantial. In this paper, I quantify the implications of classification errors in the U.S. Current Population Survey (CPS), in which respondents misreport their true labor force status. Once I correct for measurement error using a latent variable approach, the unemployment rate is on average 0.8 percentage points (ppts) higher than the official unemployment rate, with a maximum of 2.0 ppts higher between 1996 and 2018. This paper further quantifies the contributions to business-cycle fluctuations in the unemployment rate from job separation, job finding, and participation. Correcting for misclassification changes previous studies' results about the contributions of these transition probabilities: job separation accounts for more of the unemployment fluctuations, while participation accounts for fewer. The methodology I propose can be applied to any other labor force survey in which labor force status is observed for three periods.

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IMF Working Papers

ISSN:: 1018-5941

Publisher:: International Monetary Fund

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