A Non-Employment Index for Ireland

As well as a sharp rise in unemployment, the economic and financial crisis saw a significant increase in the number of people outside the labour force, i.e. individuals who are currently not classified as unemployed but are not in employment and are available for work. In this Letter we construct a new measure of labour utilisation - the Non-Employment Index (NEI) - that takes into account this potential additional labour supply. The index distinguishes between groups like short-term and long-term unemployed, discouraged workers and passive job seekers, factoring in how likely each group is to transition to employment. By including tailored weights that take into account persistent differences in each group’s likelihood of regaining employment, the NEI is arguably a more comprehensive measure of labour market conditions than the standard unemployment rate. Our estimates show that, as of the last quarter of 2016, 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. Our analysis suggests 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 recovery continues.