A New Bias in the Unemployment Rate?

In the article http://www.nytimes.com/2014/08/26/upshot/a-new-reason-to-question-the-official-unemployment-rate.html?_r=0&abt=0002&abg=1, David Leonhardt reviews recent research that indicates that the unemployment rate has become increasingly inaccurate, because Americans are less willing than before to respond to surveys about their employment status. The reason and the solution both relate to technology, he asserts.

Labor Market Statistics and the Federal Reserve

An article in the New York Times (http://www.nytimes.com/2014/08/25/business/central-bankers-new-gospel-spur-jobs-wages-and-inflation.html?ref=business) discusses how central banks’ attitude towards unemployment has changed. Basically, central banks (the Federal Reserve in the United States and similar organizations in other counties) used to be concerned primarily with inflation. Now central banks are increasingly concerned with unemployment.

The article also mentions (and links to) a new 19-component index of labor market conditions (called the Labor Market Conditions Index [LMCI]). The new index – discussed at http://www.federalreserve.gov/econresdata/notes/feds-notes/2014/assessing-the-change-in-labor-market-conditions-20140522.html - is intended to give a holistic assessment of the labor market.

What are the main things included in the index? What elements are emphasized in the LMCI that were not part of the traditional overview of the labor market?

Unemployment and Labor Force Participation

One of the key things I emphasize in discussing the unemployment rate is that that statistic cannot be understood without context.  The context is what is happening with the labor force.  Unemployment is measured by the answer to a specific question about job search.  Many people who are not “actively” seeking work are still unemployed – they just fall into the category “not in the labor force” because they did not engage in the specific job-seeking activity in the relevant period.

This article by Annie Lowrey makes that point and others: http://www.nytimes.com/2014/01/22/business/states-cutting-weeks-of-aid-to-the-jobless.html?ref=annielowrey&_r=0.

To taper or not to taper - that is the question!

The blog post by Krugman points to the importance of the size of the labor force and changes in it in understanding unemployment data. Given his observations, what can sustain lower labor force participation in the long run?

The prospect of Larry Summers at the Fed

Here is an article that gives a variety of views about the expected appointment of Larry Summers to be Chairman of the Fed: http://www.nytimes.com/2013/09/03/business/as-summerss-odds-rise-stimulus-easing-is-seen.html?hp&_r=0

Stimulus

Here are two recent articles about stimulus:

Monetary stimulus

http://www.nytimes.com/2013/08/24/business/economy/at-a-fed-conference-views-differ-sharply-on-stimuluss-effect.html?src=rechp 

Fiscal stimulus

http://krugman.blogs.nytimes.com/2013/08/30/too-little-gone-too-soon/?_r=0 

Hint for the question in the previous post

Here is a hint to help those trying to answer the question in the previous post:

http://research.stlouisfed.org/tutorials/fredgraph/customtransformations/