unemployment and the labour market

Paul Goldrick-KellyNERI (Nevin Economic Research Institute)[email protected]

Unemployment and the Labour Market

II

Union College Presentation4th November 2016

Lecture OutlinePart 1: How do we read and understand labour market statistics and indicators?

Part 2: Theoretical Concepts

Part 3: General Overview of the Irish Labour Market

Part 4: Gender and the Labour Market

Part 5: Brief Comment on Policy Issues

Part 1How do we read and understand labour market

statistics and indicators?

Basic Definitions• The Basic definition of employment used by the International Labour

Organisation refers to “all persons of a specified age, who during a specified period:

I. Performed some work for a wage or salary in cash or in kind.II. Had a formal attachment to a job but were temporarily not at work during the reference

period.III. Performed some work for profit or family gain in cash or in kind.IV. Were in an enterprise (business, farm etc.) but were temporarily not at work during the

reference period.

• This corresponds to the employed and self employed.

Basic Definitions• The unemployed are all individuals without work of a specified age (not

in employment or self-employment) during the reference period who:

I. Were available for work during the specified period.II. Were actively seeking work during that period, i.e. they had taken specific steps

seeking work in the previous 4 weeks (usually).

• It should be noted that this is differs, in the Irish case, to reported numbers on the live register, which include part-time claimants among others entitled to these payments.

• The Labour Force is the sum of the employed and unemployed.

Other Related Definitions• The Labour Force Participation Rate refers to that portion of the

working age population that actively engage in the labour market (as defined earlier). Usually this is measured between the ages of 15 and 64, but the choice of metric is flexible. This is measured as a percentage.

• The Inactivity Rate is that portion of the working age population that are not in the labour force.

• The Employment Rate similarly is that portion of the working age population that are employed.

Other Definitions• The Job Vacancy rate is an indicator that reflects unmet labour demand as

well as potential mismatches in skills and availability on either side of the labour market.

• This is useful as a metric gauging economic performance as well as structural features of the economy/labour market.

• This statistic simply measures the number of job vacancies (overall or in a particular sector/industry) as a percentage of jobs filled and job vacancies.

• Higher percentages tend to correspond to “tighter” labour markets.

Job Vacancy RateEU job vacancy rate of 1.8%UK is 2.5% and Germany 2.4%ROI is just 0.9% - marginally better than Greece

Job Vacancy Rates by Sector

Labour market is particular soft in construction (0.3%) and transport (0.3%)Tighter sectors include finance (2.4%) and ICT (2.1%)

Why Do These Statistics Matter?

• While the unemployment rate is the most commonly used indicator of labour market health, labour force participation and employment rates tend to be far more reflective of overall macroeconomic performance.

• They more accurately reflect an economy’s ability to create jobs and provide a more holistic picture of economic performance.

• As we’ll see later, this is a long standing issue for Ireland.

• These measures aren’t without their problems as the do not account for the quality of this employment.

Digging Deeper…• What other measures can we use to get a sense of the “true” state of the

labour market?

• Broader Unemployment measures exist to account for issues such as worker discouragement, potential additional labour force and underemployment.

• The “Basic” Unemployment measure can also be described in terms of:

I. Long-Term UnemploymentII. Structural UnemploymentIII. Cyclical UnemploymentIV. Frictional Unemployment

Broader Measures of Unemployment• Broader measures of unemployment can capture individuals who otherwise

may fall out of standard unemployment statistics. A non-exhaustive list includes:

I. Discouraged workersII. Want a job but are unavailable to work.III. Available to work but not seeking it. Potential Additional Labour ForceIV. Employed on a part-time basis but would rather full-time employment.

• These statistics can be helpful if falls in unemployment really reflect reductions in the labour force or the take up of jobs that don’t reflect an individual’s willingness to work.

Broader Measures of Unemployment in

Ireland

2007Q1

2007Q2

2007Q3

2007Q4

2008Q1

2008Q2

2008Q3

2008Q4

2009Q1

2009Q2

2009Q3

2009Q4

2010Q1

2010Q2

2010Q3

2010Q4

2011Q1

2011Q2

2011Q3

2011Q4

2012Q1

2012Q2

2012Q3

2012Q4

2013Q1

2013Q2

2013Q3

2013Q4

2014Q1

2014Q2

2014Q3

2014Q4

2015Q1

2015Q2

2015Q3

2015Q4

2016Q1

2016Q20.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

State PLS1 (Persons aged 15-74) (%) State PLS2 (Persons aged 15-74) (%)State PLS3 (Persons aged 15-74) (%) State PLS4 (Persons aged 15-74) (%)

Indi

cato

r % a

s a F

uncti

on o

f Res

pecti

ve B

ase

Source: Central Statistics Office QNHS

Broader Measures of Unemployment in

Ireland

2007Q1

2007Q2

2007Q3

2007Q4

2008Q1

2008Q2

2008Q3

2008Q4

2009Q1

2009Q2

2009Q3

2009Q4

2010Q1

2010Q2

2010Q3

2010Q4

2011Q1

2011Q2

2011Q3

2011Q4

2012Q1

2012Q2

2012Q3

2012Q4

2013Q1

2013Q2

2013Q3

2013Q4

2014Q1

2014Q2

2014Q3

2014Q4

2015Q1

2015Q2

2015Q3

2015Q4

2016Q1

2016Q20

100

200

300

400

500

600

700

PLS1 PLS2 PLS3 PLS4

Num

ber o

f Ind

ivid

uals

(Tho

usan

ds)


Part 2Theoretical Concepts

Cyclical Unemployment• Cyclical, deficient-demand, or Keynesian unemployment, occurs when there

is not enough aggregate demand in the economy to provide jobs for everyone who wants to work.

• Keynesian economics emphasises the cyclical nature of unemployment and recommends government interventions in the economy that it claims will reduce unemployment during recessions.

• This theory focuses on recurrent shocks that suddenly reduce aggregate demand for goods and services and thus reduce demand for workers.

• Demand for most goods and services falls, less production is needed and consequently fewer workers are needed, wages are sticky and do not fall to meet the equilibrium level, and mass unemployment results.

Frictional Unemployment• Frictional unemployment is the time period between jobs when a worker is

searching for, or transitioning from one job to another.

• Frictional unemployment is always present in an economy, so the level of involuntary unemployment is properly the unemployment rate minus the rate of frictional unemployment.

• Frictional unemployment exists because both jobs and workers are heterogeneous, and a mismatch can result between the characteristics of supply and demand.

• Workers as well as employers accept a certain level of imperfection, risk or compromise, but usually not right away; they will invest some time and effort to find a better match. This is in fact beneficial to the economy since it results in a better allocation of resources.

Long-Term Unemployment

• This is normally defined, for instance in European Union statistics, as unemployment lasting for longer than one year. It is an important indicator of social exclusion.

• Long-Term Unemployment is associated with mental and material stress.

• Long-Term Unemployment can cause long term economic damage.

• Microeconomic “scarring” can arise as an individuals earnings are effected over the longer-term. Long-Term Unemployment may be self perpetuating.

• Macroeconomic “scarring” occurs as potential output is reduced as skills degrade, for example, reducing productivity. This can also lead to a longer-term increase in the “structural unemployment rate”.

Long-Term Unemployment

2007Q1

2007Q3

2008Q1

2008Q3

2009Q1

2009Q3

2010Q1

2010Q3

2011Q1

2011Q3

2012Q1

2012Q3

2013Q1

2013Q3

2014Q1

2014Q3

2015Q1

2015Q3

2016Q10%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0

50

100

150

200

250

Both sexes Less than 1 year Both sexes 1 year and over Both sexes Not stated Both sexes 1 year and over

Perc

enta

ge o

f Tot

al U

nem

ploy

men

t

Thou

sand

s of P

eopl

e


Structural Unemployment

• Mainly relates to structural problems in the economy and inefficiencies inherent in labour markets, including a mismatch between the supply and demand of labourers with necessary skill sets.

• Structural arguments emphasize causes and solutions related to disruptive technologies and globalization.

• Structural unemployment occurs when a labour market is unable to provide jobs for everyone who wants one because there is a mismatch between the skills of the unemployed workers and the skills needed for the available jobs.

• Structural unemployment is hard to separate empirically from frictional unemployment, except to say that it lasts longer.

Structural Unemployment

• However, Structural unemployment may also be encouraged to rise by persistent cyclical unemployment: if an economy suffers from long-lasting low aggregate demand!

• This means that they may not fit the job vacancies that are created when the economy recovers. The implication is that sustained high demand may lower structural unemployment. This theory of persistence in structural unemployment has been referred to as an example of path dependence or "hysteresis".

• Much technological unemployment due to the replacement of workers by machines, might be counted as structural unemployment. Alternatively, technological unemployment might refer to the way in which steady increases in labour productivity mean that fewer workers are needed to produce the same level of output every year.

Full-Employment• The Concept of structural unemployment relates to economic notions of full-

employment.

• In contrast to popular conceptions of the term, economists generally define “full-employment” as consistent with non-zero rates of unemployment.

• Full-employment, in this context, refers to an absence of cyclical unemployment. Structural Unemployment and frictional employment still exist in this state.

• Full-employment is often said to be consistent with the Non-Accelerating Inflation Rate of Unemployment (NAIRU). This refers to a rate of unemployment at which inflation does not increase, as wage claims do not place upward pressure on the price level.

Part 3General Overview of the Irish Labour Market

Unemployment over time

19831984

19851986

19871988

19891990

19911992

19931994

19951996

19971998

19992000

20012002

20032004

20052006

20072008

20092010

20112012

20132014

2015

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

18.00%

Ireland United Kingdom United States

Unem

ploy

men

t as a

per

cent

age

of e

cono

mica

lly a

ctive

Pop

ulati

on

Source: Eurostat Labour Force Survey

Unemployment over time

19831984

19851986

19871988

19891990

19911992

19931994

19951996

19971998

19992000

20012002

20032004

20052006

20072008

20092010

20112012

20132014

0

0.02

0.04

0.06

0.08

0.1

0.12

0.14

0.16

0.18

Euro area Ireland Sweden

Unem

ploy

men

t as a

per

cent

age

of e

cono

mica

lly a

ctive

Pop

ulati

on

Source: Eurostat Labour Force Survey

Unemployment over time• We see that Ireland is a relatively poor performer in unemployment terms until

the early 90s at which point unemployment fell dramatically.

• By the early 2000’s Irish unemployment was below that of Sweden and the Euro-area and, at times, the US and UK.

• Ireland however was disproportionately impacted by the global financial crisis relative to these comparators.

• While unemployment has declined substantially and is now less than that of the euro area, it remains above levels observed in the US, UK and Sweden.

• This is a familiar and recognisable story. What is the picture like in overall employment terms?

Employment Rate over time

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 201540.00%

45.00%

50.00%

55.00%

60.00%

65.00%

70.00%

75.00%

Ireland United Kingdom

Source: Eurostat Labour Force SurveyNote: Data relates to Total employment (resident population) as a function of working population between 15-64 years

Employment Rate over time

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 20150.4

0.45

0.5

0.55

0.6

0.65

0.7

0.75

0.8

Euro area (17 countries) Ireland Sweden


Employment Rate over time• Ireland’s performance over time is less impressive in terms of total employment rates.

• Irish employment rates (15-64 years) converge on those of the UK and Sweden (they exceed EA-17 averages) between the mid 90’s and 2007.

• Overall employment has recovered slightly, but hasn’t attained 2007 levels and a substantial gap persists relative to all comparators to 2015.

• Other measures can be used to reflect some downward bias due to participation in education etc. by taking other populations (20-64 years for example) but general story persists.

Part 4Gender and the Labour Market

Gender Employment Rate - Males

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 201540.00%

45.00%

50.00%

55.00%

60.00%

65.00%

70.00%

75.00%

80.00%



Gender Employment Rate - Males

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 20150.4

0.45

0.5

0.55

0.6

0.65

0.7

0.75

0.8



Gender Employment Rate - Females

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 201535.00%

40.00%

45.00%

50.00%

55.00%

60.00%

65.00%

70.00%


Gender Employment Rate - Females

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 20150.35

0.4

0.45

0.5

0.55

0.6

0.65

0.7

0.75

0.8


Gender Differentials in the Employment Rate• Separation of employment rates by gender reveals separate dynamics up to,

and following the economic crash.

• Much of the rapid employment growth observed over the course of the “Celtic Tiger” reflected the markedly increased incorporation of women into the labour market.

• Male employment also increased but appears far more stable from the early 2000’s to the crash. Female employment continued to increase rapidly.

• Males appear to have been harder hit in employment terms by the crash, at least initially. A great deal of this is believed to relate to the difficulties faced by the construction sector (TASC, 2015).

Employment shifts by sector

Econom ic sector Q3 2007 Q3 2012 Q3 2015 Net change 2007–2015

Em ploym ent ratio Q3-2015/Q3-2007

Declining sectors C onstruction 268,200 100,100 126,200 -142 ,000 47 .1% A dm in and suppo rt se rv ice 81,700 64,700 66,000 -15 ,700 80 .8% Industry 303,500 230,700 251,700 -51 ,800 82.9% W holesale and re ta il trade 308,700 271,000 273,300 -35 ,400 88.5% F inancia l, insurance, rea l esta te 105,700 101,200 98,800 -6 ,900 93.5% P ublic adm in and defence 106,900 99,300 100,400 -6 ,500 93.9% Transporta tion and sto rage 92,100 90,200 90,700 -1 ,400 98.5% Expanding sectors A gricu lture, fo restry and fish ing 109,500 84,300 111,200 +1,700 101.6% A ccom m odation and food 134,100 119,600 136,300 +2,200 101.6% P ro fessional, sc ien tific and tech 115,300 101,300 120,800 +5,500 104.8% E duca tion 140,200 146,000 152,300 +12,100 108.6% O ther activ ities 95,400 100,600 103,800 +8,400 108.8% H um an health and socia l w ork 217,300 243,700 252,200 +34,900 116.1% In fo rm ation and com m unica tion 68,300 78,600 84,100 +15,800 123.1% Total em ployment 2,146,900 1,831,300 1,967,800 -179,100 91.7%

Gender Differentials in the Employment Rate• At least part of the observed gap between total employment rates in Ireland and those of

selected comparators over time can be accounted for by comparatively low rates of employment among women.

• In 2015, the employment rate for men in Ireland between 15 and 64 years of age was 68.7%. The rate for women was 57.9%.

• The Swedish male employment rate was 77% in 2015, while the female rate was 74%. For the UK, this was 77.6% vs 67.9% and in the Euro-17 area, this was 69.7% and 59.4%.

• While this gap was somewhat narrower immediately preceding the crisis -both relative to Irish male employment and comparator female employment rates – it persists throughout the observed period.

Part 5Brief Comment on Policy Issues

Why Might this Be?• The degree to which states subsidise childcare is seen to be a major

contributor (NERI, 2016). Childcare costs in Ireland are relatively high and under-supported (Rastrigina and Verashchagina, 2015).

• Other comparator states have much more substantive supports to encourage female participation.

• Policy within the UK shifted from the 1990’s to tax and expenditure supports for working parents. Sure Start etc. (National Women’s Council 2005)

• Sweden is known to provide substantive supports to parents. Parent’s pay a maximum of 20% of childcare costs (National Women’s Council 2005).

Other Policy Issues• A number of other issues exist in the Irish labour market including the

prevalence of low pay and “hidden unemployment”. These issues impact different groups in unique ways.

• The quality as well as quantity of new jobs created should be a focus for public policy.

• For example, while employment rates in the UK remain high relative to may comparators, earnings have fallen substantially.

• Active labour market policy including retraining may be required to ameliorate this as well as possible demand side intervention on the part of the state or “off-books” vehicle (NERI, 2016).

Other Policy Issues• Historical employment participation patterns are also believed to have

arisen due to the nature of development in Ireland.

• Irish domestic enterprises remain the largest employer in the state, but are concentrated in low value added industries.

• Investment is focused in industries with lower wages and lower employment growth prospects.

• This feature of the Irish economy will be investigated in a long-term work project at NERI looking at Enterprise in Ireland.

unemployment and the labour market

Economy & Finance