How many people are really available for work?
16 February 2012
Yesterday’s unemployment figures made grim reading with 2.7 million unemployed on the international standardised measure used by the International Labour Office (ILO). This includes all those who said they had looked for work in the past 4 weeks and were able to start a job in 2 weeks time. However, the TUC recently published a report showing that there were in fact 6.3 million unemployed. This is 2.3 times higher than the standard ILO measure.
The TUC measure is not however a measure of unemployment. It is based on a definition adopted by the US Bureau of Labor Statistics (BLS) called “U6” which provides a measure of labour market slack. This tries to capture all those who would be available to work if jobs became available, or who would like to work more hours than they currently do.
The US measure includes those unemployed by ILO definitions, but adds people who are classified as economically inactive by ILO definitions (not in work or ILO unemployed) who say they want a job and could re-join the labour market quickly if one where offered. The US Bureau calls this group “marginally attached”. In addition, the Bureau includes people who are working part time, but who say they are only doing so because no full time jobs are available.
The TUC has produced a fascinating chart that shows how these two measures have moved over time, (the first quarter starting from April 1993) The figures suggest a strong structural element in the wider measure – in other words, high levels of labour market slack have been a permanent feature of the UK labour market over the past 20 years and are not just a creation of the recession. Recent trends show ILO unemployment increasing much faster than the wider U6 measure.
The TUC analysis has had to use UK data, not all of which quite corresponds with US data and concepts. The biggest difference is that the US measures only includes the inactive who want to work if they have looked for work in the past year and could start a job in the week of the survey. The TUC uses the only readily available UK figure, the total number of inactive who say they want a job. However, a closer match with the American “U6” definition would significantly reduce this total and therefore the overall estimate of labour market slack in the UK.
When discussing these issues some commentators also refer to the number of involuntary temporary workers – people in temporary work who said they would like a permanent job. However, they are not included in the US “U6” definition or in the TUC total, as they are not strictly speaking an indicator of labour market slack – people are working at the time of the survey even if they would prefer a more secure job.
More plausibly taken into account are the large numbers of part time workers who said they would like a full time job. The US measure includes all such part time workers, and so does the TUC. However, a stricter measure of labour market slack would try and measure the difference in hours that people are actually working, against the hours they would prefer. Average hours actually worked by part time workers in the UK in their main job are about 40 per cent of average actual hours worked by full time workers.
These measures of labour market slack are useful not just to highlight the jobs challenge facing any government, but also to give analysts and policy makers a better idea of just how much labour is readily available to sustain a recovery. In recent years both the Office of Budget Responsibility and the Bank of England have looked at wider labour market slack measures for exactly this reason. The TUC measure is not a perfect match for the U6 indicator, but it can be refined and developed. Even more useful would be the adoption of a similar measure by the Office for National Statistics, based on the U6 definition used by the US Bureau of Labor Statistics, and published alongside the ILO unemployment measure.