An Index of Labour Market Well-being for OECD Countries

This report’s objective is the construction of an index of labour market well-being that is capable of measuring the well-being that individuals in a given society at a given point in time can obtain through the labour market. Besides considering simply the average return from working, workers are also typically concerned with inequality in the distribution of earnings, as well as skills acquisition that affects future returns from working and the uncertainty surrounding these future returns due to, for example, the possibilities of job loss, injury and insufficient income in retirement. The index proposed and constructed here hence attempts to incorporate each of these aspects of labour market well-being. The Centre for the Study of Living Standards has developed an Index of Economic Well-being based on trends in consumption flows, stocks of wealth, inequality, and economic security. This framework is applied here, but the focus is on the well-being of individuals as workers. The proposed Index of Labour Market Well-being (ILMW) therefore covers all persons of working age, both employed and unemployed, and includes 1) the average current return from work; 2) the aggregate accumulation of human capital, which enables future returns from work; 3) inequality in current returns from work; and 4) insecurity in the anticipation of future returns from work. Estimates of the proposed Index are developed for 16 OECD countries for the 1980-2001 period.