The Hornstein-Kudlyak-Lange Non-Employment Index (NEI) is an alternative to the standard unemployment rate that includes all non-employed individuals and accounts for persistent differences in their labor market attachment. It provides a more comprehensive reading of labor market health and is based on research first published by Richmond Fed economist Andreas Hornstein , San Francisco Fed economist Marianna Kudlyak , and McGill University economist Fabian Lange . It is updated monthly after the Basic Monthly CPS microdata release, which takes place about two weeks after the monthly BLS Employment Summary release that includes the unemployment rate.

The Hornstein-Kudlyak-Lange Non-Employment Index (NEI) was 10.6 percent in August 2020, declining from 11.8 percent in July 2020. It has risen by 3.2 percentage points compared to August 2019. The NEI including workers who are part time for economic reasons (PTER) was 12.0 percent in August 2020, a decrease compared to 13.4 percent in the previous month. That index is 3.8 percentage points higher compared to August 2019.

What is the Non-Employment Index?

The Non-Employment Index is a weighted average of all non-employed people expressed as the share of the civilian non-institutionalized population 16 years and older. The weights take into account persistent differences in each group's likelihood of transitioning back into employment.

The NEI differs from the standard unemployment rate as a measure of resource utilization in two important ways:

1. It counts not only the unemployed, but also those out of the labor force. The latter is a diverse group that includes individuals who want a job (such as the marginally attached who are willing and able to work and sought employment in the past, but have stopped searching) and those who do not want a job (such as retirees, the disabled, students, and those who are neither retired, nor disabled, nor in school).

2. It weights the different groups of non-employed (that is, both the unemployed and people out of the labor force) according to their labor market attachment, or the likelihood that a non-employed person will transition back into the job market. Specifically, each group is weighted by its historical transition rate to employment relative to the highest transition rate among all groups (the transition rate of the short-term unemployed).

An additional version of the NEI is calculated to include people who are working part time but would like to work full time, a category called "part time for economic reasons" (NEI+PTER).

How should I interpret the NEI?

Because the NEI is more comprehensive and includes tailored weights of non-employed individuals, it arguably provides a more accurate reading of labor market conditions than the standard unemployment rate.

Another way to interpret the NEI is to look at its movements over time relative to those of the standard unemployment rate. The charts below depict the standard unemployment rate (also called U-3) on the vertical axis against the NEI (in Figure A) and NEI+PTER (in Figure B) on the horizontal axis. Each dot on the scatterplot represents a monthly combination of these series for the period of 1994 to 2020. The latest month is represented by a black triangle. The black line is the linear regression of the unemployment rate on the NEI estimated on the data from January 1994 to June 2007.