Skip to content

The Unemployment Rate vs. Other Indicators

Thursday, June 11, 2015
labor market indicators

The unemployment rate is an oft-cited gauge of labor market health. But how good of a gauge is it? An article in The Regional Economist compared the unemployment rate with a few recently developed indexes designed to measure “labor market conditions” or “labor market health.”

Maximiliano Dvorkin, an economist with the Federal Reserve Bank of St. Louis, looked at the unemployment rate with labor market conditions indexes created by the Federal Reserve Board of Governors and the Federal Reserve Bank of Kansas City in 2014. He found that, “despite some differences in their construction and the variables used, the three indexes that I reviewed seem to provide essentially the same information. This similarity is not surprising since they are, after all, trying to capture the same object, namely the general health of the labor market.”

The Indexes

The index developed by the Board of Governors uses 19 labor variables (measured monthly) of the U.S. economy. The index goes back to July 1976 and reports in average monthly changes, rather than index levels.

The Kansas City Fed developed two indexes, both using 24 variables (also measured monthly) and starting in January 1992. The first index is interpreted as the level of conditions in the labor market, and the second reflects the momentum, or changes, in these conditions.


Dvorkin compared the indexes and the unemployment rate by both the changes in labor market conditions and the level of labor market conditions. He said it was evident that the unemployment rate and the indexes are highly synchronized.1 He noted, “While nothing in the statistical procedure behind the indexes imposes this strong link between them and the unemployment rate, the data suggest that the unemployment rate is very informative of the underlying conditions in the labor market.”

He concluded, “A closer inspection of the figures suggests that this strong link between the indexes and the unemployment rate does not appear to have changed recently, which suggests that the unemployment rate is still as good at measuring labor market conditions as it has been in the past.”

Notes and References

1 For a more detailed explanation of Dvorkin’s analysis and to see the charts used in the analysis, see the article “Assessing the Health of the Labor Market: The Unemployment Rate vs. Other Indicators.”

Additional Resources

Posted In Labor  |  Tagged maximiliano dvorkinlaborunemploymentunemployment rate
Commenting Policy: We encourage comments and discussions on our posts, even those that disagree with conclusions, if they are done in a respectful and courteous manner. All comments posted to our blog go through a moderator, so they won't appear immediately after being submitted. We reserve the right to remove or not publish inappropriate comments. This includes, but is not limited to, comments that are:
  • Vulgar, obscene, profane or otherwise disrespectful or discourteous
  • For commercial use, including spam
  • Threatening, harassing or constituting personal attacks
  • Violating copyright or otherwise infringing on third-party rights
  • Off-topic or significantly political
The St. Louis Fed will only respond to comments if we are clarifying a point. Comments are limited to 1,500 characters, so please edit your thinking before posting. While you will retain all of your ownership rights in any comment you submit, posting comments means you grant the St. Louis Fed the royalty-free right, in perpetuity, to use, reproduce, distribute, alter and/or display them, and the St. Louis Fed will be free to use any ideas, concepts, artwork, inventions, developments, suggestions or techniques embodied in your comments for any purpose whatsoever, with or without attribution, and without compensation to you. You will also waive all moral rights you may have in any comment you submit.
comments powered by Disqus

The St. Louis Fed uses Disqus software for the comment functionality on this blog. You can read the Disqus privacy policy. Disqus uses cookies and third party cookies. To learn more about these cookies and how to disable them, please see this article.