The NEI is the weighted sum of all the non-employed (unemployed and those out of the labor force) where the weight for each group is given by its probability to transition to employment relative to the highest probability among all groups (the probability of the short-term unemployed). The weights are designed to account for persistent differences in employment probabilities among the non-employed. We also construct the Non-Employment Index with Part-Time for Economics Reasons, which includes the part-time employed who would like to work full-time. Selected media coverage: WSJ, Bloomberg, The New York Times, FRED St Louis FED Database, Econbrowser by James Hamilton
This article describes the Non-Employment Index:
Measuring Resource Utilization in the Labor Market
by Andreas Hornstein, Marianna Kudlyak and Fabian Lange, Economic Quarterly, FRB Richmond, 1Q 2014.
Abstract: In the U.S. labor market unemployed individuals that are actively looking for work are more than three times as likely to become employed as those individuals that are not actively looking for work and are considered to be out of the labor force (OLF). Yet, on average, every month twice as many people make the transition from OLF to employment than do from unemployment to employment. These observations on labor market transitions suggest that the standard unemployment rate and its extensions proposed by the Bureau of Labor Statistics are both too coarse and too narrow as measures of resource utilization in the labor market. These measures are too narrow since they exclude a large part of the population that is potentially employable, and they are too coarse since they assume the same labor force attachment for all nonemployed individuals. We construct a measure of resource utilization in the labor market, a non-employment index, that is both comprehensive and accounts for differences in labor force attachment. Prior to 2007, the standard unemployment rate was highly correlated with our non-employment index but, during the recession of 2007--09 and its aftermath, the standard unemployment rate overstated the extent of underutilization in the labor market.
This article provides theoretical foundations for the Non-Employment Index:
Generalized Matching Functions and Resource Utilization Indices for the Labor Market
by Andreas Hornstein and Marianna Kudlyak, Economic Quarterly, FRB Richmond, 2017.
Abstract: In the U.S. labor market, unemployed individuals who are actively looking for work are more than three times as likely to become employed than those individuals who are not actively looking for work and are considered to be out of the labor force (OLF). Yet, on average, every month twice as many people make the transition from OLF to employment than make the transition from unemployment to employment. Based on these observations, we have argued in Hornstein, Kudlyak, and Lange (2014) for an alternative measure of resource utilization in the labor market, a nonemployment index (NEI), that is more comprehensive than the standard unemployment rate. In this article, we show how the NEI fits into recent extensions of the matching function (which is a standard macroeconomic approach to model labor markets with frictions), how it affects estimates of the extent of labor market frictions, and how these frictions have changed in the Great Recession.
These are additional materials that describe the non-employment index and its applications:
Measuring Labor Utilization: the Non-Employment Index
Marianna Kudlyak. Economic Letter, FRB San Francisco, March 2017, 2017-08.
How Much Has Job Matching Efficiency Declined?
Andreas Hornstein and Marianna Kudlyak. Economic Letter, FRB San Francisco, August 2017, 2017-25.