Unemployment and the Composition of Labour Slack: An International Comparison

The present statistical apparatus allows us to construct a single indicator of the degree of non-utilisation of labour resources that mitigates the shortcomings of the traditional unemployment rate. This paper defines a method to measure aggregate labour slack, and applies it to post-1973 data for four countries: Canada, the Netherlands, Sweden and the U.S.A. The estimates take into account non-utilised labour resources due to unemployment, to changes in the number of hours actually worked and to changes in registered labour force participation. Since changes in and the manipulation of working time schedules on the one hand, and of labour supply on the other, have become more frequent over the last few decades, it is highly relevant to investigate international and intertemporal differences in the non-utilisation of labour resources by means of a ratio that accounts for these changes. Unemployment is ill-suited for this purpose, and therefore a labour slack estimate is constructed, which takes working time developments and changes in labour force participation into consideration. The estimate is cyclically more sensitive and more internationally comparable than the traditional unemployment rate.