Estimating labour market slack in the European Union

Abstract:

Labour market slack is the shortfall between the volume of work desired by workers and the actual volume of work available. The most important indicator of labour slack is the unemployment rate, but an exclusive focus on this fails to take account of the four-fifths of the jobless population who are inactive rather than unemployed. Many people in this group have some form of labour market attachment – they would like to work, are seeking work or are available to work. In addition, many part-time workers would like to work longer hours.

The aim of this report is to develop a more nuanced estimate of labour slack using EU Labour Force Survey data, which allows involuntary part-timers and inactive people with some labour market attachment to be identified and quantified. The authors calculate that there were around 50 million people in the broad category of labour slack in 2015 and that labour slack has been slower to fall in response to the recovery than unemployment.

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