Exact Unemployment Rate Indices

Michael J. Greenwood and Ulrich Kohli

Contemporary Economic Policy, 2003, vol. 21, issue 2, 218-226

Abstract: Conventional unemployment rate measures tend to overestimate the degree of labor underutilization if unemployment disproportionately affects less educated and generally less productive workers. Based on index number theory as well as on econometric techniques, this article proposes a number of alternative measures that are exact for specific labor aggregator functions. The results for the United States show that the conventional, unweighted unemployment rate overestimates the true rate by about 0.6 of a percentage point, or by almost 14%.

Date: 2003
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