Matthew C Klein, Columnist

NY Fed Says Job Market Is Great, Really

New research claims that an import labor market indicator is “misleading.” But it fails to answer the most important questions.

February 3, 2014 at 11:17 PM UTC

By Matthew C Klein

Matthew C. Klein writes for Bloomberg View about the economy and financial markets. He previously wrote for the Economist magazine and its economics blog, Free Exchange. Before that, Klein was a research associate at the Council on Foreign Relations, where he spent more than two years studying the history of the Federal Reserve and the intellectual history of monetary economics for an upcoming book by Sebastian Mallaby. He also worked at Bridgewater Associates, where he studied the economies of Central and Eastern Europe and advised institutional investors on asset-liability management. Klein has a bachelor's degree in history from Yale University. Originally from Chicago, he lives in New York.

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There's a saying that demographers can explain 150 percent of whatever you want to know. In that context, it probably makes sense to read a new piece of research from the Federal Reserve Bank of New York with extra skepticism. The claim is that the labor market is stronger than most people think.

Most of the time, the best way to gauge the health of the labor market is to ask lots of people whether they want to work and compare that to the number of people who are working. This is more or less how the unemployment rate is calculated. This methodology has recently come into question because many people stopped looking for work right about the time the economy tanked and have kept dropping out of the labor force throughout the gradual economic recovery. The implication is that the recent improvement in the unemployment rate may be overstating the extent to which the job market has healed.