A Capability-Based Framework for Labour-Market Resilience
The 2021 edition of the GLRI introduces a new framework that emphasises the key capabilities countries require to better prepare for shorter-term shocks such as COVID-19 and longer-term stresses such as technological disruption and the green transition. Resilience can be defined as the capability to withstand all disruptions, but the specific capabilities that make a system resilient vary by the type of disruption. The capabilities needed to ensure resilience to long-term stress, such as technological disruption, differ from those required during a short-term shock such as COVID-19.
Resilient Labour Markets Display High Quantity and Quality of Jobs
A low unemployment rate alone is not indicative of a resilient labour market. The USA is a case in point: the unemployment rate jumped from a 50-year low of 3.5% in February 2020 to 14.7% in April, the highest level since January 1948, before falling to 6.7% by November 2020. The persistently high level is partly explained by structural challenges related to large numbers of low-skilled workers in roles highly vulnerable to economic shocks. There is a strong correlation between performance in the GLRI 2021 and a combined metric of unemployment rates and labour productivity, a proxy for labour-market performance.
European Countries Dominate the Top 10
Switzerland tops the GLRI 2021 rankings on the strength of its balanced performance across the framework's dimensions. Germany is second overall with an outstanding structural performance (1st), cemented by high economic complexity. The Netherlands enters the top three on the back of greater economic diversification and a leading position in Revealed Comparative Advantage. Singapore (4th) is the only non-European country in the top 10, ranking highest on absorptive capabilities. Denmark and Sweden rank 5th and 6th; Austria 7th, benefiting from a relatively younger population; and Finland, Luxembourg, and Norway complete the top 10 at 8th, 9th, and 10th.
The Small-Country Advantage, and Its Limits
The top 10 is dominated by smaller countries, with the exception of Germany. Smaller countries enjoy several cyclical resilience advantages, lower spatial disparities, greater government closeness to the population, and the relative speed and ease of regulation and policy implementation, and perform particularly well on transformation capabilities, with a strong orientation towards innovation and digital and green transitions.
On the other hand, small size can threaten resilience by increasing risk exposure and dependency on other countries, translating into structural vulnerabilities. A simple comparison between Singapore and the Netherlands illustrates this: while Singapore ranks higher on absorptive, adaptive, and transformative capabilities, it ranks lower on structural capabilities (8th vs 2nd) due to higher trade vulnerability and relatively low export diversification (62nd). Singapore also shows how small countries can face higher vulnerabilities through global linkages beyond trade, such as continued access to a skilled labour force.
