An Employment Pressure Index as an Alternative Measure of Labor Market Conditions

Abstract

Much attention has been devoted to the peculiar behavior of the unemployment rate from 1969 to 1973. In past recessions, the unemployment rate reached definite turning points and showed fairly consistent recovery shortly thereafter. Its behavior during the 1970 recession and the subsequent recovery, however, was noticeably different. The unemployment rate rose to around 6%o in November 1970 and remained very close to that level until June 1972, setting a record for the longest peak in the history of the series. Moreover, through the summer and fall of 1973, when other economic indicators had been signaling that recovery was well under way and that the economy was approaching full capacity, the unemployment rate continued to indicate a relatively slack labor market. Geoffrey Moore, former Commissioner of the Bureau of Labor Statistics, has suggested (1973) that the unemployment rate may be overemphasized as a target variable for economic policy. After analyzing several labor market indicators, Moore concluded that . . the evidence indicates that in recent months we have been closer to full employment than the unemployment rate by itself suggests (1973). Moore had advocated earlier that employment data should be given at least as much attention as unemployment data in analyzing labor market statistics. He suggested that the employment data were superior to the unemployment figures, not only because of problems in defining involuntary unemployment, but also because the employment series contains relatively less sampling error (1972). This paper presents a new data series that relates employment data to an historical standard. The new series is referred to as an employment pressure index (EPI); its purpose is to transform raw employment figures into a series that can be used to measure labor market conditions. Since the EPI does not rely upon either unemployment or civilian labor force data, it is not affected by the definitional problems inherent in the unemployment statistics. The new series is compared with the unemployment rate as a labor market indicator.