• Journal of Labour Economics
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• v.43 no.4
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• pp.117-141
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• 2020

The paper focuses on the question of whether and how the labor underutilization indicator supplements the unemployment rate. The research is based on the differences in the labor market behavior among three groups of the not-employed; the unemployed, potential labor force and the rest of outside the labor force. The annual transition rate among the labor market states shows that the potential labor force has the explicit unmet need for employment different from the rest of the outside the labor force. The multinomial logit regression controlling the effects of individual characteristics rejects the hypothesis that the potential labor forces are behaviorally identical to the unemployed. The evidence shows that the two indices should be interpreted distinctively.