This document provides an outline and overview of key labor market concepts for a university presentation on unemployment and the labor market. It defines important terms like employment, unemployment, labor force participation and different types of unemployment. It also discusses broader measures of unemployment, trends in long-term unemployment in Ireland, and concepts of structural and cyclical unemployment as well as the economic definition of "full employment".

1. Paul Goldrick-Kelly
NERI (Nevin Economic Research Institute)
Dublin
PaulGk@NERInstitute.net
www.NERInstitute.net
Unemployment and the
Labour Market
II
Union College Presentation
4th November 2016

2. Lecture Outline
Part 1:
How do we read and understand labour market
statistics and indicators? What are some
important concepts?
Part 2:
I. The Case of Ireland, past and present.
II. The Minimum Wage

3. Part 1 Outline
• Basic definitions in the Labour Market.
• Measures of Unemployment and Underemployment.
• Full Employment?
• The Wage Share of National Income.
• The Minimum Wage.

4. Basic Definitions
• The Basic definition of employment used by the International Labour
Organisation refers to “all persons of a specified age, who during a
specified period:
I. Performed some work for a wage or salary in cash or in kind.
II. Had a formal attachment to a job but were temporarily not at work during the reference
period.
III. Performed some work for profit or family gain in cash or in kind.
IV. Were in an enterprise (business, farm etc.) but were temporarily not at work during the
reference period.
• This corresponds to the employed and self employed.

5. Basic Definitions
• The unemployed are all individuals without work of a specified age (not in
employment or self-employment) during the reference period who:
I. Were available for work during the specified period.
II. Were actively seeking work during that period, i.e. they had taken specific steps
seeking work in the previous 4 weeks (usually).
• It should be noted that this is differs, in the Irish case, to reported numbers
on the live register, which include part-time claimants among others
entitled to these payments.
• The Labour Force is the sum of the employed and unemployed.

6. Other Related Definitions
• The Labour Force Participation Rate refers to that portion of the
working age population that actively engage in the labour market (as
defined earlier). Usually this is measured between the ages of 15 and 64,
but the choice of metric is flexible. This is measured as a percentage.
• The Inactivity Rate is that portion of the working age population that are
not in the labour force.
• The Employment Rate similarly is that portion of the working age
population that are employed.

7. Why Do These Statistics
Matter?
• While the unemployment rate is the most commonly used indicator of
labour market health, labour force participation and employment rates tend
to be far more reflective of overall macroeconomic performance.
• They more accurately reflect an economy’s ability to create jobs.
• As we’ll see later, this is a long standing issue for Ireland.
• These measures aren’t without their problems as the do not account for the
quality of this employment.

8. Digging Deeper…
• What other measures can we use to get a sense of the “true” state of the
labour market?
• Broader Unemployment measures exist to account for issues such as
worker discouragement, potential additional labour force and
underemployment.
• The “Basic” Unemployment measure can also be described in terms of:
I. Long-Term Unemployment
II. Structural Unemployment
III. Cyclical Unemployment
IV. Frictional Unemployment

9. Broader Measures of
Unemployment
• Broader measures of unemployment can capture individuals who otherwise
may fall out of standard unemployment statistics. A non-exhaustive list
includes:
I. Discouraged workers
II. Are not immediately available to work but wish to work.
III. Want a job but are unavailable to work.
IV. Available to work but not seeking it
V. Employed on a part-time basis but would rather full-time employment.
• These statistics can be helpful if falls in unemployment really reflect
reductions in the labour force or the take up of jobs that don’t reflect an
individual’s willingness to work.

10. Broader Measures of
Unemployment in Ireland
• PLS1 indicator is unemployed persons plus discouraged workers as a
percentage of the Labour Force plus discouraged workers.
• PLS2 indicator is unemployed persons plus Potential Additional Labour
Force as a percentage of the Labour Force plus Potential Additional Labour
Force
• PLS3 indicator is PLS2 plus others who want a job, who are not available
and not seeking for reasons other than being in education or training as a
percentage of the Labour Force plus Potential Additional Labour Force plus
others who want a job, who are not available and not seeking for reasons
other than being in education or training.
• PLS4 indicator is PLS3 plus part-time underemployed persons as a
percentage of the Labour Force plus Potential Additional Labour Force plus
others who want a job, who are not available and not seeking for reasons
other than being in education or training.

11. Broader Measures of
Unemployment in Ireland
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
2007Q1
2007Q2
2007Q3
2007Q4
2008Q1
2008Q2
2008Q3
2008Q4
2009Q1
2009Q2
2009Q3
2009Q4
2010Q1
2010Q2
2010Q3
2010Q4
2011Q1
2011Q2
2011Q3
2011Q4
2012Q1
2012Q2
2012Q3
2012Q4
2013Q1
2013Q2
2013Q3
2013Q4
2014Q1
2014Q2
2014Q3
2014Q4
2015Q1
2015Q2
2015Q3
2015Q4
2016Q1
2016Q2
Indicator%asaFunctionofRespectiveBase
State PLS1 (Persons aged 15-74) (%) State PLS2 (Persons aged 15-74) (%)
State PLS3 (Persons aged 15-74) (%) State PLS4 (Persons aged 15-74) (%)
Source: Central Statistics Office QNHS

12. Broader Measures of
Unemployment in Ireland
0
100
200
300
400
500
600
700
2007Q1
2007Q2
2007Q3
2007Q4
2008Q1
2008Q2
2008Q3
2008Q4
2009Q1
2009Q2
2009Q3
2009Q4
2010Q1
2010Q2
2010Q3
2010Q4
2011Q1
2011Q2
2011Q3
2011Q4
2012Q1
2012Q2
2012Q3
2012Q4
2013Q1
2013Q2
2013Q3
2013Q4
2014Q1
2014Q2
2014Q3
2014Q4
2015Q1
2015Q2
2015Q3
2015Q4
2016Q1
2016Q2
NumberofIndividuals(Thousands)
PLS1 PLS2 PLS3 PLS4
Source: Central Statistics Office QNHS

13. Cyclical Unemployment
• Cyclical, deficient-demand, or Keynesian unemployment, occurs when
there is not enough aggregate demand in the economy to provide jobs for
everyone who wants to work.
• Keynesian economics emphasises the cyclical nature of unemployment and
recommends government interventions in the economy that it claims will
reduce unemployment during recessions.
• This theory focuses on recurrent shocks that suddenly reduce aggregate
demand for goods and services and thus reduce demand for workers.
• Demand for most goods and services falls, less production is needed and
consequently fewer workers are needed, wages are sticky and do not fall to
meet the equilibrium level, and mass unemployment results.

14. Frictional Unemployment
• Frictional unemployment is the time period between jobs when a worker is
searching for, or transitioning from one job to another. It can be voluntary
based on the circumstances of the unemployed individual.
• Frictional unemployment is always present in an economy, so the level of
involuntary unemployment is properly the unemployment rate minus the
rate of frictional unemployment.
• Frictional unemployment exists because both jobs and workers are
heterogeneous, and a mismatch can result between the characteristics of
supply and demand. Such a mismatch can be related to skills, payment,
work-time, location, seasonal industries, attitude, taste, and a multitude of
other factors.
• Workers as well as employers accept a certain level of imperfection, risk or
compromise, but usually not right away; they will invest some time and
effort to find a better match. This is in fact beneficial to the economy since
it results in a better allocation of resources.

15. Long-Term Unemployment
• This is normally defined, for instance in European Union statistics, as
unemployment lasting for longer than one year. It is an important indicator
of social exclusion.
• Long-Term Unemployment is associated with mental and material stress.
• Long-Term Unemployment can cause long term economic damage.
• Microeconomic “scarring” can arise as an individuals earnings are effected
over the longer-term. Long-Term Unemployment may be self perpetuating.
• Macroeconomic “scarring” occurs as potential output is reduced as skills
degrade, for example, reducing productivity. This can also lead to a longer-
term increase in the “structural unemployment rate”.

16. Long-Term Unemployment
0
50
100
150
200
250
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2007Q1
2007Q2
2007Q3
2007Q4
2008Q1
2008Q2
2008Q3
2008Q4
2009Q1
2009Q2
2009Q3
2009Q4
2010Q1
2010Q2
2010Q3
2010Q4
2011Q1
2011Q2
2011Q3
2011Q4
2012Q1
2012Q2
2012Q3
2012Q4
2013Q1
2013Q2
2013Q3
2013Q4
2014Q1
2014Q2
2014Q3
2014Q4
2015Q1
2015Q2
2015Q3
2015Q4
2016Q1
2016Q2
ThousandsofPeople
PercentageofTotalUnemployment
Both sexes Less than 1 year Both sexes 1 year and over Both sexes Not stated Both sexes 1 year and over
Source: Central Statistics Office QNHS

17. Structural Unemployment
• The main types of unemployment include structural unemployment which
focuses on structural problems in the economy and inefficiencies inherent
in labour markets, including a mismatch between the supply and demand of
labourers with necessary skill sets.
• Structural arguments emphasize causes and solutions related to disruptive
technologies and globalization.
• Structural unemployment occurs when a labour market is unable to provide
jobs for everyone who wants one because there is a mismatch between the
skills of the unemployed workers and the skills needed for the available
jobs.
• Structural unemployment is hard to separate empirically from frictional
unemployment, except to say that it lasts longer. As with frictional
unemployment, simple demand-side stimulus will not work to easily
abolish this type of unemployment.

18. Structural Unemployment
• Structural unemployment may also be encouraged to rise by persistent
cyclical unemployment: if an economy suffers from long-lasting low
aggregate demand, it means that many of the unemployed become
disheartened, while their skills (including job-searching skills) become
"rusty" and obsolete. Problems with debt may lead to homelessness and a
fall into the vicious circle of poverty.
• This means that they may not fit the job vacancies that are created when the
economy recovers. The implication is that sustained high demand may
lower structural unemployment. This theory of persistence in structural
unemployment has been referred to as an example of path dependence or
"hysteresis".
• Much technological unemployment due to the replacement of workers by
machines, might be counted as structural unemployment. Alternatively,
technological unemployment might refer to the way in which steady
increases in labour productivity mean that fewer workers are needed to
produce the same level of output every year. The fact that aggregate
demand can be raised to deal with this problem suggests that this problem
is instead one of cyclical unemployment.

19. “Full-Employment”
• The Concept of structural unemployment relates to economic notions of
full-employment.
• In contrast to popular conceptions of the term, economists generally define
“full-employment” as consistent with non-zero rates of unemployment.
• Full-employment, in this context, refers to an absence of cyclical
unemployment. Structural Unemployment and frictional employment still
exist in this state.
• While we won’t cover this idea in depth, Full-employment is often said to
be consistent with the Non-Accelerating Inflation Rate of Unemployment
(NAIRU). This refers to a rate of unemployment at which inflation does not
increase, as wage claims do not place upward pressure on the price level.