Does the Ilo Definition Capture All Unemployment?

Abstract

The labour market status of many nonworking persons is at the boundary between unemployment and inactivity. Like the unemployed, they seek and are available for work; unlike them, their last search action was not recent enough to meet the International Labour Office definition of unemployment. In this paper we examine by nonparametric tests how the transition probabilities of these out‐of‐the‐labour‐force job seekers differ from those of the unemployed as well as the other nonparticipants. First, using data from the European Community Household Panel, we show that in most EU countries these job seekers constitute a distinct labour market state. Second, we rely on information available only in the Italian Labour Force Survey to derive a measure of search intensity that we use to break down the out‐of‐the‐labour‐force job seekers. On the basis of their transition probabilities, the most active are indistinguishable from the unemployed. (JEL: J64, J22, R23)

Choosing among alternative classification criteria to measure the labour force state

“…The logic of what we do closely resembles previous work by Flinn and Heckman (1983), Jones and Ridell (1999) and Brandolini et al (2004). As the approach taken in this paper, the above mentioned research looks for behavioural similarities between some benchmark groups whose labour market state is known on the one hand, and groups whose labour market state is unclear on the other.…”

“…The second criterion, which has been followed by the Italian Statistical Office up to July 1992 before switching to the Eurostat criterion, shares condition (i) and (ii) with the previous criterion but only requires the individual to have actively looked for a job, regardless of how far in the past. As discussed in Sorrentino (2000) and Brandolini et al (2004), and as we will show in the next section, the choice between these two alternative classification criteria can appreciably affect labour force statistics.…”

“…For example, Sorrentino (2000) points out discrepancies in the labour force statistics arising from the criteria adopted by North-American and European statistical agencies, respectively, and shows that many of these discrepancies can be explained by differences in the classification of individuals at the boundary between unemployment and inactivity. Brandolini et al (2004) show how participation and unemployment rates calculated from the European Community Household Panel, whose format closely resembles that of European LFSs, are sensitive to variations in the definition of unemployed individuals.…”

“…Such a design will allow us to study the properties of the classification rules on a sensitive sub-population of individuals (married women) over a fairly diversified range of economic circumstances, the economic context varying with respect to labour market structures (the regional breakdown), business cycle (with five survey occasions, covering years of expansion, recession and slight recovery) and the level of female participation at work (it sharply increased over the time span considered in the analysis). As pointed out by Brandolini et al (2004), the Italian LFS provides a unique source of data to study the boundary between unemployment and inactivity, as information on the timing of the last search action is not collected in any other European LFS, nor in Canada or in the Current Population Survey in the United States.…”

“…As we will discuss further below, an extension of the analysis exploiting the LFS panel along the lines suggested by Jones and Riddell (1999) would be desirable. Indeed, the Italian Statistical Office has just released public use two-wave panel samples, obtained by exploiting the rotating sample scheme of the Italian LFS (see Brandolini et al, 2004). However, it is hard to imagine that it will be ever feasible to gather longitudinal data for the last two decades of the 20th century.…”