Scandinavian Working Papers in Economics

Memorandum,
Oslo University, Department of Economics

No 09/2003: How Tight is the Labour Market? A Micro-Based Macro Indicator.

Simen Gaure () and Knut Røed ()
Additional contact information
Simen Gaure: Ragnar Frisch Centre for Economic Research, Postal: Gaustadalléen 21, N-0349 Oslo, Norway, http://www.frisch.uio.no/
Knut Røed: Ragnar Frisch Centre for Economic Research, Postal: Gaustadalléen 21, N-0349 Oslo, Norway, http://www.frisch.uio.no/

Abstract: We develop a new indicator of labour market tightness, based on the pure calendar time changes in individuals’ transition rates from unemployment to employment.Based on Norwegian register data from the 1989-2002 period, we show that this indicator,in contrast to the aggregate rate of unemployment, correlates well with an expost-calculated GDP-based business cycle indicator, even around the time of business cycle turning points. The indicator can be calculated just as quickly as the unemployment rate, both at an aggregate and a disaggregate level, and hence improve policy makers ability to assess current labour market developments.

Keywords: Labour market tightness; Business cycles; Unemployment

JEL-codes: C41; E32; J64

34 pages, March 4, 2003

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