A new GLO Discussion Paper advertises for the unemployment-to-population ratio and the inactivity-to-population ratio as two highly appropriate and complementary measures of labor market health.
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GLO Discussion Paper No. 610, 2020
The iceberg decomposition: a parsimonious way to map the health of labour markets – Download PDF
by Baert, Stijn
GLO Fellow Stijn Baert
Author Abstract: This article introduces the metaphor of the iceberg in the labor market. While policy in most OECD countries has historically focused on reducing unemployment (the tip of the iceberg), the group of inactive people (below the waterline) is much larger. Therefore, we point to the clear limitations of the unemployment rate as the (single) key macro-economic indicator of the health of the labor market. A parsimonious dashboard approach utilizing the unemployment-to-population ratio and the inactivity-to-population ratio as two highly appropriate and complementary measures is defended. We show that the ratio of these two indices varies greatly between countries, which calls for different policies for different countries.
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