Money Matters

New angles catch the light on Japan’s stressed workers and America’s poor

June 19, 2017
By Sarah O’Connor

Everyone knows that high unemployment means an unhealthy labour market. But does it follow that high employment means a healthy one?

More people have jobs in the developed world this year than in buoyant 2007 before the financial crisis hit. The forecasts for next year show employment rising in almost every country in the OECD. Yet there is a swell of popular discontent with the economy and how it works. Economists are troubled by the dissonance between their statistics and the mood on the streets. Organisations such as the OECD use unemployment and employment rates to assess labour market performance - they are easy to measure and straightforward to compare across countries. But counting the number of jobs tells you nothing about their quality, their security, their prospects or their fairness.

This year the OECD has come up with a new barometer for labour market success. It has nine indicators: three for the quantity of jobs, three for their quality and three for their inclusiveness. You can quibble but the metrics are rigorous and precise and the results revealing. It is like looking at the world’s labour markets in three dimensions instead of two.

Some new angles catch the light. The first is the connection between employment rates and low income - defined by the OECD as the share of working-age people on less than half the median income. The organisation has made this one of its “inclusiveness” metrics, reasoning that a country with a healthy labour market will not have too many people bunched at the bottom. As you might expect, the low-income rate varies markedly across the 35 OECD countries. Iceland is at one end of the range (4.6 per cent) and Spain at the other (16.5 per cent). And there is a strong negative correlation between low-income rates and employment rates. In general, countries with lots of people in work have fewer on low incomes. A job is a good cure for poverty.

But not everywhere. The US has Finnish levels of employment but Greek levels of low income. That is a scary statistic for American policymakers. Spain and Greece suffered high unemployment after the eurozone crisis, which is beginning to come down: they have some catching up to do. In contrast, the US’s jobs engine is whirring away at a decent clip but failing to lift a sizeable chunk of workers out of relative poverty - little wonder the push for higher minimum wages in the US has gathered pace. The average low-income rate for working households in the OECD is about 7 per cent. In the US it is almost 12 per cent. Jobs may be necessary to lift people out of relative poverty, but they are not necessarily sufficient.

The pattern holds true for job quality too. There is a rough correlation between countries with high employment and decent jobs. But there are also plenty of exceptions. Indeed, jobs that are high quality in some ways can be dire in others. The UK and Japan rank fairly well on employment rates but diverge on job quality. Japanese workers are more secure than British ones: they face a much smaller income hit if they become unemployed. But they have a far tougher time in the workplace. About half of them are “under strain”,facing high job demands with few resources to meet them. The same is true for only about a third of UK workers.

The third message is that trade-offs between the quantity and quality of jobs are not necessary. It is true that high employment does not always mean all is well. Look at Japan’s stressed-out workers, or the US’s impoverished ones. But high employment often coexists with decent and inclusive jobs.

The labour markets of Iceland, Sweden, Norway and Denmark have some of the highest employment rates of all - and they perform similarly well on the other metrics. To mangle Tolstoy: all healthy labour markets are alike; each unhealthy labour market is unhealthy in its own way.