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We develop a general misclassification model to explain the so-called “Rotation Group Bias (RGB)” problem in the Current Population Surveys, where different rotation groups report different labor force statistics. The key insight is that responses to repeated questions in surveys can depend not only on unobserved true values, but also on previous responses to the same questions. Our method provides a framework to understand why unemployment rates in rotation group one are higher than those in other rotation groups in the CPS, without imposing any a priori assumptions on the existence and direction of RGB. Using our method, we provide new estimates of the U.S. unemployment rates, which are much higher than the official series, but lower than previous estimates that ignored persistence in misclassification.

This paper develops a model that allows for heterogenous contemporaneous peer effects among different types of agents who are endogenously selected into different peer groups. Using our framework, we characterize the reduced-form coefficient in the peer effect literature and show that it is a priori ambiguous in sign. We apply our approach to migrant and local students in Shanghai, where local students all go to public schools, but migrant students are endogenously selected into either public schools or lower-quality private schools. The results suggest large contemporaneous peer effects among all student groups. We conduct policy experiments to examine the effect of transferring migrant students from private schools to public schools. We show that peer effect can be substantially more important than the school effect in accounting for the total treatment effect of moving to better schools.

Despite extensive literature on peer effects, the role of peers on personality skill development remains poorly understood. We fill this gap by investigating the effects of having disadvantaged primary school peers, generated by random classroom assignment and parental migration for employment. We find that having disadvantaged peers significantly lowers conscientiousness, agreeableness, emotional stability, and social skill. The implied effects of a 10-15 percentage point change in the classroom proportion of disadvantaged peers are comparable to the effects of popular early childhood interventions. Furthermore, we find suggestive evidence that these effects are driven by the peers' personality skills.

Accurate identification of economic recessions in a timely fashion is a major macroeconomic challenge. The most successful early detector of recessions, the Sahm rule, relies on changes in unemployment rates, and is thus subject to measurement errors in the U.S. labor force statuses based on survey data. We propose a novel misclassification-error-adjusted Sahm recession in- dicator and provide empirically-based optimal threshold values. Using historical data, we show that the adjusted Sahm rule offers earlier identification of economic recessions. Based on the newly released U.S. unemployment rate in March 2020, our adjusted Sahm rule diagnoses the U.S. economy is already in recession, while the original Sahm rule does not.

This paper studies the effect of state-owned enterprises on the dynamics of the Chinese urban labor market. Using longitudinal monthly panel data, we document very low dynamics in the labor market, especially in the state sector. We develop and calibrate an equilibrium search and matching model with three differences between the state and the non-state sector: labor productivity, labor adjustment cost, and workers' bargaining power. Counterfactual analysis shows that the lack of dynamics is mainly driven by the strong bargaining power of state-sector workers. Eliminating the differences between the two sectors substantially reduces the unemployment rate and long-term unemployment rate.