The Richmond Fed has released the latest reading of its Hornstein-Kudlyak-Lange Non-Employment Index (NEI). At 7.93 percent, the NEI has now fallen below its pre-recession minimum of 7.99 percent, reached in March, 2007, and it is fast approaching the value of 7.70 percent reached in October 2000, just before the 2001 recession. Data for the NEI are not available before 1994.
The NEI gives important insight into the question of whether or not the U.S. economy is now approaching, or has passed, its potential level of GDP. The standard unemployment rate (U-3) is often criticized as misleading because it does not count people who are out of the labor force. Experience suggests that such people represent a “hidden” labor reserve, since some of them can be drawn back to the labor force when the job market tightens.
The NEI deals with this problem in two ways: