This is a guest post by Stephen G. Bronars, Ph.D., a Senior Economist, Adjunct Professor of at Georgetown, Ph.D. in Economics from University of Chicago, opinions are his own.

Paul Krugman, in his weekend blog post Slackers at the Fed, waffled on his long-held position that the labor market recovery is weak. Krugman was nearly swayed by a Financial Times post by Gavyn Davies who posited that the unemployment rate, which has dropped from 10% in October 2009 to 7.3%, may be the best measure of slack in the labor market. Davies quoted John Williams of the San Francisco Fed as saying “the unemployment rate remains the best overall summary statistic” while “the employment to population ratio blurs structural and cyclical influences”.  With all due respect to Williams and Davies, who are not labor economists, the employment to population ratio, adjusted for demographic changes in the population, is a far superior barometer of the labor market than the unemployment rate. The decline in the unemployment rate in the past year has been misleading because it ignores discouraged jobless workers who have abandoned their job search.


For more, visit Modeled Behavior blog feature, “Paul Krugman Should Trust His Instincts: The Labor Market Recovery Is Weak.”