Contemporaneous vs. Retrospective Unemployment: Through the Filter of Memory or the Muddle of the Current Population Survey?

Abstract

This paper documents and attempts to explain the observed disparities between unemployment rates computed from contemporaneous and retrospective CPS data. The maintained hypothesis is that the discrepancies are consistent with different definitions of unemployment between the two measures. The longitudinal nature of the CPS, which allows a respondent's answers to be matched between one year and the next, is exploited to examine two commonly expressed shortcomings in the contemporaneous definition. I find that relative to the retrospective measure, more workers with weak labor force attachment are considered unemployed in the contemporaneous rate. In addition, discouraged workers, who are classified as out of the labor force according to the contemporaneous definition, may be counted as unemployed in the retrospective.