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The Concept of the Employment Rate and Its Empirical Usefulness(Vol.8 No.2)

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The Concept of the Employment Rate and Its Empirical Usefulness(Vol.8 No.2)

It is well known that the unemployment rate has some problems as it can be somehow affected by marginal participants in the labor market who normally show no consistency in their decisions to participate in the market. In this paper, we consider an alternative indicator, the employment rate or the employment/population ratio. This ratio has the advantage of enabling us to bypass the discouraged worker effect that makes the unemployment rate less reliable.
We have found that the employment rate also has empirical usefulness in some aspects. First, the employment gap rate based on the NAIRE (nonaccelerating inflation rate of employment) seems to measure inflationary pressure appropriately. Second, the employment rate appears to contain useful information for explaining the recent sluggish consumption in Korea. Third, the correlation coefficient between the growth rate and the employment rate has become bigger since the 1997 currency crisis. Based on these results, we safely suggest that employment rate be used not only for various economic analyses, but also in making decisions for monetary policy.

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