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Economic Brief

June 2014, No. 14-06

Does the Unemployment Rate Really Overstate Labor Market Recovery?

Andreas Hornstein, Marianna Kudlyak, Fabian Lange and Tim Sablik

Unemployment rose dramatically during the 2007-09 recession, peaking at 10 percent in October 2009. It has fallen steadily since then, at times outpacing economists' forecasts. In April, unemployment reached 6.3 percent, about two-thirds of the way back to its prerecession level. Such progress is often a sign of recovery, but some observers question whether the unemployment rate accurately measures resource utilization in the current labor market.

Additional Resources

Bregger, John E., and Steven E. Haugen, "BLS Introduces New Range of Alternative Unemployment Measures," Monthly Labor Review, October 1995, pp. 19-26.

Elsby, Michael W.L., Bart Hobijn, and Aysegül Sahin, "On the Importance of the Participation Margin for Labor Market Fluctuations," Federal Reserve Bank of San Francisco Working Paper 2013-05, February 2013.

Flinn, Christopher J., and James J. Heckman, "Are Unemployment and Out of the Labor Force Behaviorally Distinct Labor Force States?" Journal of Labor Economics, January 1983, vol. 1, no. 1, pp. 28-42. (A working paper version is available online.)

Fujita, Shigeru, "On the Causes of Declines in the Labor Force Participation Rate," Federal Reserve Bank of Philadelphia Research Rap, Special Report, February 2014.

Hornstein, Andreas, Marianna Kudlyak, and Fabian Lange, "A New Measure of Resource Utilization in the Labor Market," Federal Reserve Bank of Richmond, mimeo, April 2014.

Jones, Jerry, Michael Joyce, and Jonathan Thomas, "Non-Employment and Labour Availability," Bank of England Quarterly Bulletin, Autumn 2003, pp. 291-303.

Katz, Lawrence F., and Kevin M. Murphy, "Changes in Relative Wages, 1963-1987: Supply and Demand Factors," Quarterly Journal of Economics, February 1992, vol. 107, no. 1, pp. 35-78. (A working paper version is available online.)

Krueger, Alan B., Judd Cramer, and David Cho, "Are the Long-term Unemployed on the Margins of the Labor Market?" Brookings Papers on Economic Activity, Spring 2014.

Yellen, Janet L., "What the Federal Reserve Is Doing to Promote a Stronger Job Market," Speech at the 2014 National Interagency Community Reinvestment Conference, Chicago, March 31, 2014.

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