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Higher order moments of unemployment duration

The unemployment rate has steadily improved since its peak at the end of the Great Recession. The unemployment rate is a good summary of the state of the labor market, but unemployment duration also contains information about how easy it is for people to find jobs. The BLS measures duration by taking a cross-section of unemployed and asking them how long they’ve been unemployed. A persistent characteristic of the data is that some people find jobs much more quickly than others—and the longer someone is unemployed, the lower their chance of finding a job.

This dynamic leads to a distribution of unemployment duration that is “right skewed”: That is, the distribution has a long “tail” of workers who’ve been unemployed for a long time and a large number of job finders with very short spells of unemployment. We can use many measures to evaluate this skewness, but a simple one is the ratio of the mean duration to the median duration. When the mean is much larger than the median (a ratio greater than 1), then these very long durations of unemployment have increased the mean duration and the large number of short durations have decreased the median duration.

In recessions, the skewness of unemployment duration (green line) always falls because the inflow of newly unemployed with zero duration reduces the mean duration. In the aftermath of the Great Recession, unemployment duration has become increasingly skewed outward: The mean and median are still high relative to other expansions, but strikingly the skewness has continually risen. The force behind this skewness is the number of long-term unemployed, who are now a particularly prominent portion of the distribution.

How this graph was created: Search for “mean unemployment duration” and add this series to the graph: UEMPMEAN. Then use the “Add Data Series” feature to search for “median of unemployment duration” and select UEMPMED as a new line. For the third series, combine these two series to create a new series: First add UEMPMED again, then add UEMPMEAN through the “Modify existing series” option. Use the “Create your own data transformation” option and insert the formula b/a . Place this new series on the right y-axis by itself.

Suggested by David Wiczer.

View on FRED, series used in this post: UEMPMEAN, UEMPMED

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