Economic Letter: A non-employment index for Ireland

An Economic Letter by Stephen Byrne and Thomas Conefrey analyses the potential additional labour supply in the Irish economy from people not currently classified as unemployed, but who are not in employment and are available for work. This new measure is called the Non-Employment Index (NEI) and incorporates all non-employed individuals such as discouraged workers, passive job seekers and underemployed workers – individuals who are working part time but would like to work more hours. The NEI takes account of each group’s likelihood of regaining employment and can therefore be viewed as a broader measure of unemployment than the standard unemployment rate.

The key findings are:

• A large number of workers exited the labour market entirely during the economic and financial crisis of 2008 – 2012. The number of “discouraged” unemployed – those who stop searching for work – grew by 20,380 during the period
• A number of the cohorts included in the NEI are significantly more likely to transition in to employment than those traditionally captured in unemployment figures
• Given the size of the pool of non-employed individuals compared to the standard unemployment rate, the NEI arguably provides a fuller picture of labour market conditions
• The degree of labour utilisation is also key to assessing the ability of the economy to grow at a sustainable rate: a high degree of labour underutilisation indicates that the economy could continue to grow strongly without an immediate risk of overheating
• The NEI suggests a higher level of labour underutilisation currently than the standard unemployment rate. Estimates show that the non-employment rate (including part-time underemployed workers) had declined to 9.4 per cent at the end of 2016 – significantly below its crisis peak but slightly higher than the standard unemployment rate. The authors suggest that there may be some scope for the unemployment rate to fall further before significant wage pressures emerge, but labour supply conditions are tightening as a strong economic recovery continues.

The views presented in Economic Letters are those of the authors alone and do not necessarily represent the official views of the Central Bank of Ireland.

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