Beyond the unemployment rate: a closer look at the Irish labour market

Non Employment IndexNew research from the Central Bank of Ireland considers an extended measure of unemployment for Ireland.

In an Economic Letter titled: “A Non-Employment Index for Ireland”, Central Bank economists Stephen Byrne and Thomas Conefrey describe how the headline unemployment rate only partially captures labour market conditions in Ireland.

This is because it does not take into account workers who have exited the labour force such as those who returned to education or training, or those who gave up looking for work as the recession persisted.

The economists argue that even broader measures of unemployment currently available, which include workers not usually counted as unemployed, fail to fully reflect changes in the labour market.

“A key characteristic of these broader measures of unemployment is that they assign the same weight to all non-employed individuals outside the labour force,” says the report.

“As a result, they do not take into account the substantial differences in the degree of labour force attachment of different individuals.”

“A more comprehensive measure”

For a more comprehensive reading of the Irish labour market, Byrne and Conefrey have constructed a new “Non-Employment Index” (NEI) for Ireland.

The NEI for Ireland mirrors a similar index developed in the US which is updated on a monthly basis by the Federal Reserve Bank of San Francisco.

The new index distinguishes between groups like short- and long-term employed, discouraged workers and passive job seekers.

It then applies data observed during the period 1998 – 2016 to predict how likely each group is to transition to employment.

Using the NEI, the Central Bank economists found that the non-employment rate in the last quarter of 2016 had declined to 7.9%.

When underemployed workers (defined as individuals currently in a job but with a desire to work more hours) are included the estimated non-employment rate in Q4 2016 increases to 9.4%. 

“Our analysis suggests that they may be some scope for the unemployment rate to fall further before significant inflationary pressures emerge, but labour supply conditions are tightening as a strong recovery continues,” say the economists.

In conclusion, Byrne and Conefrey write that the NEI “could be viewed as a more comprehensive measure of labour utilisation.”

See also: A Non-Employment Index for Ireland