Estimating Labour Market Slack in the European Union

Abstract

The unemployment rate is an important and wellpublicised measure of labour market performance in developed market economies. It is currently high in the EU compared with other developed countries and still well above its historical average nearly a decade after the beginning of the global financial crisis. But focusing exclusively on the unemployment rate fails to take account of other numerically important manifestations of labour market slack (or simply labour slack), defined in this report as the shortfall between the volume of work desired by workers and the actual volume of work available. These other indicators have grown significantly since the crisis and have been slower to respond to the recovery than the unemployment rate itself. This report provides a broader measure of labour slack in the EU, based on EU Labour Force Survey data that cover involuntary part-timers and inactive people with some labour market attachment as well as the unemployed.