Benchmarking European labour market performance with efficiency frontier techniques

The issue addressed in this paper is how to obtain a composite measure of several indicators using benchmarking principles. While the exposition is only in two dimensions, and thus can be presented graphically, this is sufficient to capture the essence of the methodology and provide the basis for a critical examination of the assumptions. The data used is labour market statistics for the Member States of the European Union. The proposed approach comes from a technique originally used in production theory, namely efficiency frontiers. Here, however, we benchmark not efficiency but performance. There are two main problems. First, related to composite measures, how does one compare (weigh) indicators that are not obviously comparable? Second, related to benchmarking, how does one benchmark countries that may differ considerably as regards the mix of the various indicators. Both these issues concern weights and require that the weighting system should be parsimonious as regards assumptions and flexible, in that not all countries should necessarily be awarded the same weights.