Measuring the employment rate

The other day I was browsing some employment statistics on Eurostat to verify something I’d heard on the news and then I started wondering how accurate these statistics are. How much can politicians play with them and make them look good? So I read the definition of the employment rate:

The employment rate is calculated by dividing the number of persons aged 20 to 64 in employment by the total population of the same age group. The indicator is based on the EU Labour Force Survey. The survey covers the entire population living in private households and excludes those in collective households such as boarding houses, halls of residence and hospitals.
Employed population consists of those persons who during the reference week did any work for pay or profit for at least one hour, or were not working but had jobs from which they were temporarily absent.

The bold part is what got my attention. So apparently anyone who worked at least one hour a week is considered employed according to this index. I thought this is hardly an acceptable measure, so I started looking for a way to combine this data with average labor hours per worker (ALH) somehow.

What I had in mind was to somehow correct the employment rate of those countries downwards that had a lower ALH than the average, and vice versa. So as a simple statistic I looked at where each country stands in ALH relative to the average of the sample and then corrected the employment rate using this relative difference.

For example: if a country’s ALH was 1787 hours and the average ALH in the sample was 1700 hours, then this country stood at 1787/1700 = 105% of the average. Therefore, I modified its employment rate upward by multiplying it by 1.05 to take it into account that its workers work longer hours. Effectively, this new figure shows what the employment rate would be if in each country the ALH would be equal to the sample average.

The following table was the result of this:

corrected_emp_idx

The data shows that many countries seem to have high employment rates only because of their large part-time worker population. Countries such as the Netherlands, Germany or Norway see their employment rates drop dramatically once ALH are taken into account. These countries have quite high uncorrected employment rates (all are in the top six) but this seems to be due to the fact that they either have large part-time worker populations or that for some reason (regulatory or cultural) people work less on average. The net effect in any case is that companies need to hire more workers and thus the employment rate is high.

The main conclusion is that the employment rate is not such a great measure of the health of the labor market in general. Thus just because a country’s employment rate is higher than another one’s, it does not necessarily mean that the labor market is in better shape there, it may just mean that more part-time opportunities are available.

Sources: Eurostat for employment data, OECD for labor hours data.

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