* Unemployment insurance (UI) claims are a good predictor for real-time unemployment rates.
* They can be used to forecast near-future unemployment for local areas, as well as industrial sectors.
* UI claims provide a quicker and more flexible read on the market that potentially benefits policymakers and economic researchers.
* In the case of Indiana, a 1% increase in continued UI claims on average responds to a 0.6% increase in monthly unemployment.
The U.S. Bureau of Labor Statistics (BLS) produces several estimates--labor force participation, employment, unemployment and unemployment rate--that serve as key indicators of national, regional and local economic conditions. These estimates have multiple uses, including federal funding allocations to states and areas. They are also used by private industry and researchers to monitor local labor supply. The BLS estimates are based on responses to a monthly survey of households. For states and local areas, unemployment claims are also used as an input to the estimation. (Keep in mind that not all unemployed persons file for unemployment benefits.)
As a result of the current and ongoing public health crisis (COVID-19), the Indiana Business Research Center (IBRC) team decided to see if we could use weekly state-and county-level unemployment claims data to develop a reasonable unemployment rate forecast that would fall in line with the official estimates later produced by BLS. While claims data are not used by the BLS for the calculation of the national unemployment rate, claims data do serve as inputs into the calculation of state and local area unemployment statistics (LAUS). (1)
An ad hoc approach to predict local unemployment was developed to calibrate the intrinsic relationship between unemployment rates and UI claims, which then can be used to make predictions about near-future unemployment. This article explores one possible approach to generate unemployment forecasts for regions and industry sectors.
When an employee becomes unemployed, he or she can apply for unemployment insurance, a joint state-federal financial relief program that provides benefits to eligible workers. There...