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

February 26, 2019

Preview Citation

Format: Chicago

Ippei Shibata. Are Labor Market Indicators Telling the Truth? Role of Measurement Error in the U.S. Current Population Survey, (USA: International Monetary Fund, 2019) accessed September 18, 2024

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.

Summary

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.

Subject: Labor, Labor flows, Labor force, Labor markets, Unemployment, Unemployment rate

Keywords: Classification Errors, Current Population Survey, Employment population ratio, Global, Gross Worker Flows, HMM estimate, Labor flows, Labor force, Labor force force flow, Labor markets, Participation margin, Transition dynamics, Unemployment, Unemployment fluctuation, Unemployment rate, WP

Publication Details

Pages:

40
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2019/040
Stock No:

WPIEA2019040
ISBN:

9781498300452
ISSN:

1018-5941

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