Better Measures of the Labor Market for the Future of Work

Abstract

The world of work has changed dramatically over recent decades, but the unemployment rate continues to be a core measure of how well or badly an economy and its labor force are doing. This chapter examines how in the emerging labor market—the future of work—the measure of unemployment is increasingly compromised. As so much employment fails to deliver ongoing security and adequate income, unemployment of itself is not a sufficient indicator of the health of the economy and its workforce. The chapter argues that there is a need for better measures of what constitutes labor market status including security and income. To be considered, in some countries, unemployment is low, but many jobs are insecure and poorly paid. In others, it may be high, but jobs are highly protected and hard to obtain, especially for some groups such as young people or older people.

1. Introduction

In 2023, unemployment rates in many countries are at the lowest levels for decades. Many economies are now in recovery mode, and business is getting back to “normal” however that is defined and however conditional that may be. Over the last 3 years, there have been major disruptions to the world economy and labor markets through the COVID-19 pandemic and obstructions in global supply chains. Labor markets have progressively tightened, and there are now labor shortages in various industry sectors due to factors including worker preferences and a lack of migrant workers [1]. In this chapter, I take account of the disruptions that have occurred over the past 3 years and which now have reduced unemployment rates as economies recover. Despite this reduction, there has not been an overall improvement in the standard of living of workers with a “cost of living crisis” in train. The effects of these disruptions and the reduction of unemployment rates need to be contextualized against longer-term changes to the structure of labor markets, and more broadly, the economies in which they are located.

The unemployment rate has long been a core measure for assessing how well an economy and its population are faring. It has been the measure of how many people of working age want jobs, are actively looking for jobs, but do not have one. A low level of unemployment has been a marker for telling us that an economy is thriving, and there are plenty of opportunities for people to make a living and get ahead. It also tells us that the skills and talents across a population are being well utilized and that productivity is surging.

Conversely, a high level of unemployment has long been used as an indicator that an economy is sagging, growth is slow, and that there is reduced opportunity across a population or for particular groups. It also tells us that there is a high level of social need, poverty, and exclusion. The measure of the unemployment rate conjures a view of the economy and the labor market in terms of insiders and outsiders—or more potently, winners and losers. If you are an insider, then you are in the mainstream as an independent individual able to support yourself and your household as well as make an overall contribution to the economy and society through your outputs and taxes. The outsider conjures a bilateral view of an individual as both unable to find employment as well as embodying certain deficits such as lack of skills, or lack of effort to find work, that consolidate their exclusion.

I argue in this chapter that in the new world of work of the twenty-first century that the unemployment rate is no longer a sufficient indicator of how well an economy and its people—the labor force—are doing. In addition, the division between ‘insiders’ and ‘outsiders’ of the workforce is increasingly irrelevant. Indeed, in this interim period following the pandemic of 2020–2021, despite the surge in job opportunities, there is a significant and very troubling growth in hardship among employed people in many countries including high-income countries. This does not discount the ongoing hardships faced by unemployed people but in the new world of work, the experience and identity of unemployed people and some groups of employed people are merged.

The aim of this chapter is to show that a better core measure of labor market shortcomings is needed in the new world of work—and what this measure might consist of. The chapter draws in the main from the macro-economic sources of data and analysis of the key international bodies the ILO (International Labour Organization) and OECD (Organization for Economic Co-operation and Development) supplemented by other scholarly material focused on the labor market. The genesis of the core argument of the paper stems from my doctoral research on the growth and long-term impact of informal and insecure employment [2]. While the study had a focus on a particular subgroup in the labor market (midlife women), its findings had broad applicability as to the effect and experience of insecure employment.

This chapter is written as public policy analysis rather than a report on the findings of a particular research project. Nevertheless, it draws on the most salient analysis of core labor market and economic developments to build the case that we need better ways of determining how well or badly a labor market is performing—in the context of “the future of work.” The conclusion of the chapter as to a more adequate measure of labor market performance is intended to stimulate further development.

2. The ILO analysis of the unemployment rate

The ILO provides a starting point for my analysis in its description and critique of unemployment rates [3]. In the first instance, its focus is on labor underutilization:

The unemployment rate is probably the best-known labour market measure and is certainly one of the most widely quoted by the media. The unemployment rate is a useful measure of the underutilization of the labour supply. It reflects the inability of an economy to generate employment for those persons who want to work but are not doing so, even though they are available for employment and actively seeking work.

More concisely, it goes on to say:

The unemployed comprise all persons of working age who were: a) without work during the reference period, i.e. were not in paid employment or self-employment; b) currently available for work, i.e. were available for paid employment or self-employment during the reference period; and c) seeking work, i.e. had taken specific steps in a specified recent period to seek paid employment or self-employment.

The ILO acknowledges several shortcomings and limitations with the measure of the unemployment rate:

• it does not take account of portions of the population that wants to work but is not actively seeking work because there are limited job opportunities, or that they face discrimination, or have restricted labor mobility. This group comprises “discouraged” workers.

• a portion of the population especially women may be available for work in the near future, but unable to seek work or take work in the short term (and within the reference period for labor force surveys) especially because of present care responsibilities.

• it discounts the difference between short-term cyclical unemployment and structural long-term unemployment [3].

In addition, there are differences between countries in terms of social security systems which support people in the event they are unemployed. In most developed OECD countries, there is a limited unemployment payment embedded in the social security system. But in many countries especially developing countries, there is limited or no social protection. This means people may be forced into any income-generating activity in the informal economy just to survive—which may mean unemployment rates are low [3].

Economies and their labor markets have undergone profound changes over the last 40 years, such that the unemployment rate as originally devised has reduced significance and has had limited application in developing countries as the ILO points out. In the evolving world of work—the future of work—there are even more limitations on the usefulness of the unemployment rate as a labor market and economic measure than those pointed out by the ILO. But first, it is necessary to understand the history of the unemployment rate as a statistical measure.

3. The evolution of the unemployment rate

There are various long-term accounts of the development of the contemporary measure of unemployment in national surveys. Two of the accounts are set in the context of the United Kingdom and the United States which gives insight into the complexity of how it evolved. The US study [4] exams how unemployment was incorporated into national census surveys from the 1880s. The UK survey [5] focuses on how levels of unemployment were measured not only through the census but also by the level of registration of unemployed people with institutions over time including government labor and employment agencies, trade unions, and national insurance schemes. Both studies document how unemployment measurement from the 1940s was embedded in the “active search for work” criteria as well as an individual’s immediate availability for work.

In the post-world war 2 years, across most industrialized countries, unemployment was negligible and was only a short transitional period for the majority of workforces. Effectively anyone who wanted a job could get one, notwithstanding the much lower level of women’s workforce participation than that of men. Most importantly, the job you attained would be ongoing for as long as you wished to stay in it and would provide a sufficient income to cover basic needs such as the cost of renting and buying a home, supporting a family, and food and energy. In this context, the unemployment rate measured simply by the criteria of active search and availability for work did not present many problems. But over the recent decades, the weakness of the unemployment rate as a labor market measure has come to light.

4. Low unemployment rates and cost-of-living crisis

In the postpandemic era of 2022–2023, unemployment levels have significantly reduced. In early 2023, the average unemployment rate across the OECD is 4.8% [6]. Ten years earlier in 2013, it was 8%. In a number of countries, including the United States, Germany, Japan, the United Kingdom, and Australia, unemployment rates are below 4%. While the rates may be higher in other countries, they are nevertheless significantly lower than they were before the pandemic [6]. But the low unemployment rates have not equated to a rise in living standards. It is an extraordinary reality that with low unemployment rates in many countries, people are struggling to meet basic costs of living. Moreover, there are huge pressures on social welfare systems and charities to provide auxiliary help to many people as documented for many countries [7].

It is a great irony now that unemployment does not of itself constitute the central marker of social disadvantage for people of working age. People with jobs, in employment, may also be disadvantaged. It is a major news item in many countries and which the OECD 2022 Employment Outlook Report documents [8]. There are significant cost-of-living pressures which are attributed to long-term wage stagnation and the current rates of inflation which have not been seen since the 1970s—the “stagflation” era. The OECD 2018 Employment Outlook published before the pandemic, reports that “on average, across 24 OECD countries, there has been significant decoupling of median wage growth from productivity growth over the past two decades” [9]. In effect, while we need to understand the current causes of the cost-of-living crisis as per the problems with global supply chains, and the aftermath of the pandemic, equally we need to understand how economies and labor markets have been in a long-term process of change. Such changes resulting in the decoupling of wage growth from productivity growth, have impacted on the capacity of a job, of employment, to protect against hardship, and to enable an adequate standard of living.

The lives of most people in both developed and developing countries continue to be calibrated to attain and maintain a “good” job or profession which will see them safely and securely transit over their working lives and into a comfortable retirement. In the post-war era les trente glorieuses, this model of living was standard fare for most, although it was largely the province of men with women’s workforce participation still at relatively low levels. But as we well know, the opportunities to attain such a “good job” have progressively diminished over the last 40 years. To some extent the “good job” era was only ever a passing phase in the industrial era mostly in the postwar period of the twentieth century. Nevertheless, the notion of the “good job,” and the desire to attain it has been remarkably resilient in view of any alternatives for getting ahead in life. It is important to understand what the natures of the changes have been as well as the ongoing consequences.

5. The new ways of doing business: and work

There are many ways that the nature of work and employment has changed over the past 40 years. Fundamentally, this is the result of the ways that the sources of employment—businesses and institutions—are structured, and which are at the heart of this change.

5.1 Automation and digitization

At the top of the list is the development of new technologies which are transforming how work is undertaken. A core purpose of technology is to replace human workers and to find more efficient and cheaper ways of providing goods and services. It is also in its way, a source of invention and progress. It may provide useful ways to eliminate difficult and dangerous tasks for workers and to provide helpful new services as well as new jobs [10].

While there are many ways that new technologies and digitization have transformed the nature of work, a central effect also relates to the development of algorithms which serve for the monitoring and surveillance of worker output. While this is a flow on from the old-world mindset of Taylorism, which focused on maximizing a worker’s performance, algorithms for monitoring performance in the new world of work may be used to set targets which are unachievable and which enable the easy dismissal of workers according to the up and downs of business needs for staff.

5.2 The rise of precarious employment

Much employment in the new world of work can be defined as precarious or insecure. This is a casualized labor force where people are employed on a short term or day-to-day basis, or zero-hour contracts, with the employer preserving the right to dismiss the worker at will. Researchers such as Guy Standing have been documenting the growth of precarious employment and its effects over the last three decades [11, 12].

5.3 Contracting out and offshoring

Many enterprises have opted to minimize their permanent staff through contracting out aspects of their activities to other, mostly smaller, specialized enterprises. This reduces costs and liabilities for permanent staff in the event of changes in outputs and activities. Offshoring may mean contracting out activities to countries with lower labor costs but may also mean setting up parts of businesses in those countries where there are lower protections for workers such as in health and safety [13].

5.4 Monopsony and wage stagnation

A major theme of the 2022 OECD report Employment Outlook is that of monopsony and the effect that this has had on employment and wages over recent decades. It is described as

the situation in which employers possess unilateral wage-setting power and use it to set wages and employment below the levels that would prevail in a competitive market, where firms have to pay workers a “market rate” aligned with their productivity [8].

While much employment is located in smaller, contracted out or gig economy sectors, large enterprises still largely determine outcomes in wages and conditions for workers.

5.5 Reduction in trade union membership

The new business models which have dislocated core workforces to ever smaller units whether in contract enterprises, or the gig economy, combined with overall informatization of the economy, have also resulted in a great reduction in collective worker interests—trade unions. This has meant greatly reduced power of workers to demand adequate wages and conditions in employment [14].

5.6 The gig economy and taskification

Increasingly, workers are self-employed in on-line employment hubs where they can take on specific tasks in the so-called “gig economy.” This may have advantages in allowing people to work where and when they choose but of course, it does not come with any protections or rights.

The emergence of the gig economy has been facilitated by the breakdown of jobs into tasks—taskification [15].

5.7 The demise of public sector employment

A core source of secure and well-paid employment in the past has been in the public sector, but this has effectively reduced in most countries as governments have sought to reduce liabilities for large workforces [16].

6. The new economic order of the twenty-first century

Over the later decades of the twentieth century and now the twenty-first century, many countries have moved from industrial to postindustrial era economies focused on service industries and the knowledge economy. In some ways, the end of the industrial era also has marked the end of so-called “standard jobs” in which certain protections and security were embedded. But as the 2019 OECD Employment Outlook has identified, the economic order of the twenty-first century has brought about the diminishment of such jobs and the rise of “non-standard” employment which has given rise to more precarious and low-wage forms of employment.

The new economic order of the twenty-first century with the loss of the “good jobs” of the past has also given rise to greater inequality. Thomas Piketty’s ground-breaking treatise Capital in the Twenty-First Century provides the account of how and why income from labor has diminished so much since the 1980s [17]. Effectively income from capital assets has overtaken income from labor as the principal source of wealth creation such that inequality both within nations and between nations has greatly increased. But this is not the only source of inequality. There has been a tremendous “rise of supersalaries” as Piketty calls it (p374). Effectively this reflects “job polarization” such that there has been a loss of the middle-level “good jobs” which were the core means of opportunity for getting ahead and achieving an adequate standard of living in the postwar years. From the 1980s, there has been growth in low-wage jobs, and also a rise in highly paid employment particularly “among top managers of large firms.”

7. What new measures do we need

The analysis in this chapter makes it clear that the unemployment rate is an inadequate means of determining the situation of the labor market and associated levels of economic and worker well-being.

Much employment is low paid, insecure, and short term, and it lacks standard protections against dismissal. There is relatively little availability of long term, protected, adequately paid employment. The cost-of-living crisis in the 2020s points to a serious ebbing of the quality rather than the quantity of employment as a means to achieve an adequate standard of living, and this has been in progress well before the onset of the COVID-19 pandemic and the disruptions in global supply chains. Wage stagnation of the last 20 years has merged with the world catastrophes to create serious hardships across broad populations. Unemployment may have drifted lower recently in the recovery period from the pandemic but it has not lifted living standards. The question then is what new measures do we need in the new world of work?

The strength of the unemployment rate as a measure is its simplicity. It takes account of whether an individual works or does not work at all, and whether that individual has been looking for work over a set time-period and is available for work at the time of the labor force survey. As such it will continue to be an important measure. Other measures are likely to be much more complicated and difficult to administer. They might also involve lower levels of defined measures.

One measure that is widely used in labor force surveys is the under-employment rate (or under-utilization rate) of people who work but who wish for more hours of work. While this is an important measure and has strengths, it does not take account that people even with full-time work may not be able to garner an adequate wage with current wage stagnation and the cost-of-living crisis. Moreover, the under-employment rate does not consider whether work is secure or precarious which is a powerful determinant of the quality of employment. The ILO analysis of the deficits of unemployment rates and its proposal for a better “underutilization rate” does not take this factor into account.

There is a clear need for an “adequate employment rate” which measures how many people in fact have sustainable, adequately paid and protected employment and how many do not. While to some extent this may embody a level of self-determination as to whether the job is adequate or not, it nevertheless provides a much clearer account of the status of the labor market—and the economy. While the unemployment rate will still have its place, a much better and useful measure would be the “adequate employment rate” and its associated “inadequate employment rate.”

8. How to measure an “adequate employment rate”

An “adequate employment rate” will measure whether the work fulfills a number of criteria. These can be divided between objective and subjective measures.

8.1 Objective measures

1. Whether the work is ongoing or short-term. This would be a fundamental and simple measure that takes account of the precarity of a job. While of course some highly paid professionals may be employed in short-term contract work by choice, the measure could be consolidated by a question as to the preference of the worker for ongoing or short-term work.

2. Whether there are any protections embodied in the job against immediate dismissal. This would take account of the level of “casualization” of the labor market. Effectively, casual employment enables immediate dismissal on the whim of the employer. It is a straightforward “objective” measure.

3. Whether the hours worked are consistent or variable. Again, this is a core objective measure that highlights the level of precarity of a job.

4. Whether the hours worked are sufficient. There is already some degree of measurement of “under-employment,” but this should be incorporated into the measure of the “adequate employment rate.”

8.2 Subjective measures

1. Whether the income from the job enables the individual to meet core living costs such as housing, food, energy. This would be a more complicated and subjective measure on the part of the worker. Nevertheless, it is vital that this measure is embedded in the “adequate employment rate” measure. It can also be set against broader measures that take account of the level of inflation, wage levels particularly the minimum wage, levels of reliance on alternative forms of support such as charities. These effectively are the measures that have produced the current information about the cost-of-living crisis around the world such as the 2022 OECD Employment Outlook Report.

2. Whether the work is sustainable over the long term. There are many reports of jobs that have become increasingly difficult and fast-paced such that workers are unable to sustain the job for long periods. The predicament of workers in Amazon warehouses has been a lead story on this [18]. While to some extent, this measure for an “adequate employment rate”/inadequate employment rate, is subjective on the part of the worker, it can also be set against broader studies and data collection on practices in workplaces.

9. Conclusion

The unemployment rate will remain a vital measure of economic and social conditions and well-being. Unemployment will always mark a significant downturn in a worker’s capacity to maintain a sufficient income for an appropriate standard of living. Importantly, unemployment rates are an economic indicator which will rise during recessions and have a cyclical aspect. However, the unemployment rate is of itself an insufficient measure as labor markets and economies have profoundly changed over the past 40–50 years and are in process of further change. While having a job will always to some extent assist in mobility between jobs and protect against long-term unemployment, there is ever greater erosion of working conditions for many. In my own research [2], a number of workers were trapped for long periods in casual or contract jobs and could lose such long-term jobs in a day. The current cost-of-living crisis has also brought into focus the decline in the value of wages over the past two decades.

Core economic and social indicators need to keep up with the times. With the changes underway in the world of work—the future of work—there is a great need for a measure of “an adequate employment rate” combined with a measure of an “inadequate employment rate.” It needs to be set alongside the unemployment rates as well as the underemployment rate. It is necessary for the proper evaluation of the condition of the economy and its people in a time of massive changes at many levels: technological, climatic, population aging. This is essential for governments to implement appropriate economic and social policies that would cover areas including taxation, social protection, employment rights, and wage levels. In effect, it would be the beverage of policies that are needed for the twenty-first century for a fairer and more sustainable social and economic system.