State Policies, the Unemployment Rate, and the Employment-to-Population Ratio

Abstract

Two measures of economic activity are unemployment rates and employment-to-population ratios. Both measures provide policy-makers with information regarding local labor markets. Typically the unemployment rate has been the measure of choice. We estimate a simultaneous equations model to determine the factors that impact both measures. We focus on two variables that are influenced by state policy officials, unemployment insurance and welfare generosity. It is determined that both factors affect state unemployment rates and employment-to-population ratios. From a state level perspective, it is important to view both labor market measures to evaluate the appropriateness of the proposed policy. A policy guideline is provided to accommodate government officials in this process. (E24, E62)