Why Do We Use the Unemployment Rate? - Part II

In Why Do We Use the Unemployment Rate? I argue that the unemployment rate is a misleading indicator of the health of the economy. Arnold Kling gives a real-life example of how the unemployment rate misled:

...I focus on the index of aggregate hours worked as an indicator of macroeconomic performance. According to this indicator, the Dotcom recession was quite severe. This in turn raises interesting questions about other indicators and about the policy history...

Using [the index of hours worked in the nonfarm business sector], the Dotcom recession seems to have been much worse than the previous two, particularly in terms of length. It was not until the fourth quarter of 2006, 6-1/2 years after the peak, that the hours index edged above its peak level. It stayed above the earlier peak for four quarters, and has since slipped back below.

The reason that most people do not look at the Dotcom recession as being a severe one is that the flagship indicators, GDP growth and the unemployment rate, were better behaved during the Dotcom recession. GDP growth was reasonably robust, because productivity growth was high. The unemployment rate remained low, because labor force participation fell.

The more I think about it, the more I become convinced that we need to jettison the unemployment rate as quickly as possible as our benchmark for the health of the economy.