Some economists have concluded the official unemployment rate is increasingly inadequate to gauge the health of the job market
By David Harrison July 14, 2019 10:00 am ET The U.S. unemployment rate last month hit 3.7%—one of the lowest levels in half a century.
They’ve concluded the official unemployment rate is increasingly inadequate to gauge the health of the job market. For Fed officials, more slack means plenty of room to hold interest rates low or even cut them without worrying about inflation taking off. Changing population trends also make it hard to compare the unemployment rate across decades. For instance, the labor force is aging, and older people are less likely to be unemployed than younger people, which pushes down the unemployment rate. Likewise, more young people go to college now rather than directly into the workforce. That means they are less likely to be looking for work now than a generation ago.
Compared with the official rate, their measure suggests a less volatile labor market, one that didn’t contract quite as much during the recession and one that hasn’t improved quite as much since. “What you need to explain is why weak wage growth exists and a variable like unemployment is not going to explain [that],” Mr. Blanchflower said in an interview.Regis Barnichon, of the Federal Reserve Bank of San Francisco, and Geert Mesters, of the Barcelona Graduate School of Economics, recently developed a version of the unemployment rate that takes the aging of the population into account which, as of early 2017, indicated there was still room for the labor market to improve.
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