Tejvan Pettinger

What does it mean to talk of labour market slack? And how is it measured?

Essentially labour market slack is the shortfall between the volume of work desired by workers and the actual volume of work available.

Labour market slack also determines the difficulty or ease of employing more workers. When there is labour market slackness, there will be many applications for available jobs and firms will have no difficulty filling labour market vacancies.

When labour market slack is reduced and the labour market ‘tightens’ – firms can face difficulties filling vacancies and the economy will be close to ‘full employment.’

A tight labour market

During a period of full employment, low unemployment and difficulty filling labour vacancies, there will be very little labour market ‘slack’. We can state that the labour market is ‘tight’. Firms have to compete for the limited number of available workers. When the labour market is tight (little slack) then it tends to cause:

A slack labour market

If a labour market has a considerable degree of slackness, then employers find it very easy to employ extra workers.  A slack labour market will occur during a period of high unemployment. It will tend to cause

Measuring slackness in the labour market

There are different ways that the degree of slackness in the labour market can be measured.



Periods of rising unemployment show rise in labour market slack. Falling unemployment indicates a ‘tightening of the labour market’

The unemployment rate is an easily available statistic. Falling unemployment indicates a decline in labour market slack. However, it can be a mistake to only focus on unemployment rates. Unemployment statistics ignore

The EU estimated labour slack rate in the EU rose between 2008 and 2015 (from 11.8% to 14.9%) This was a bigger rise than the increase in the unemployment rate (from 7.1% to 9.5%). (EU)

One of the biggest reasons for the rise in labour market slack was a fall in participation rates -, especially amongst older men. The biggest reason given for leaving the labour market was ‘discouragement’ – the feeling good quality jobs were not available any more.

Factors behind the labour market slack in the EU

Source: EU-LFS Indicators of labour market slack – unemployed, underemployed, involuntary part-time and inactive

Another significant factor of labour market slack was ‘involuntary part-timers’ people who would like to work full-time, but only have part-time hours. There were 10 million involuntary part-timers in the EU survey.


Source: EU-LFS

The ratio of EU labour force.

Importance of labour market slack

The degree of labour market slack is very important for monetary policy.

For example, the fall in unemployment in the UK and US close to 4% – would indicate that the labour market has little slack. Usually, this would be an indicator the economy is reaching full employment, and it would justify an increase in interest rates. However, in 2018/19, this fall in unemployment is an unreliable guide to labour market slack. (It ignores underemployment e.tc.) wages are not rising – indicating there is still slack – despite the fall in employment.

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