Dr Clarke, this is a fascinating question.  As a vocational psychologist whose unit of analysis is that of the individual I can provide an answer that is intrinsically focused on the individual, rather than the "labour market" in which an individual exists. Forgive me, what follows is a simplistic formulation but it does set up an interesting argument.  

In principle, where possible, individuals should develop an awareness of the labour market with respect to what is "in demand" and then, on the basis of that awareness, develop the knowledge and skills to "supply" services to meet that specific demand.   This is a sizeable burden and perhaps it is a burden that any given individual cannot carry; therefore, one may consider the role of government in supporting an individual's development toward being "employable".  Government can invest in the labour force via education and training, but, ultimately, the individual is the one who takes responsibility for his/her own employability. In my mind, a key question that reflects on yours is: How can individuals become more efficient and effective in the labour market?

 I thought this idea had outlived its natural life.

Bear in mind that it puts much of the responsibility on the worker, so it has an ideological component.

I have encountered it a lot with respect to older workers, who are supposed to improve their employability.  Perhaps more useful is the term "workability".  This puts more emphasis on the role of the employer, who has the responsibility to make adaptations to workplaces and to reduce the elements of work that are deleterious to health and /or to make sure that employees continue to provide training.

It ia a  concept relating to individuals, rather than the labour market. But it is a elusive construct and difficult to measure. so often people have to look at employment outcomes, which are affected by labour market efficiency.

Appreciate the perspectives Peter, Bernard and Lixin,

Frstly, on the individual nature of employability

Secondly, on the common calls for burdens of labour market efficiency to incorporate employees (talent), firms and government dimensions and reinforcing that employability only treats with the employees pillar. 

@Peter: Re-framed question would be more appropriate, particularly in light of employability's position at the individual-level.

@Bernard:  The construct of workability is a new one for me. Found a link from Prof Phillip Taylor that describes "Work ability" as "an internationally recognized measure of a worker’s fit with their work, and based on the interaction between an individual’s resources (e.g. health, functional capacity, education) and their work (e.g. mental and physical demands, work community and work environment)." 

Also http://www.safeworkaustralia.gov.au/sites/SWA/Search/Results?q=workability&start=1&type=all

Please share any other links.

Best all,

Silburn

To me, employability while important is just one side ( supply) of the coin (labor market), the other side being the demand for labor . The efficiency lies in matching of demand and supply through active labor market policy and institutions.

More specifically, employability can be defined as the capacity to move self sufficiently into and within labour markets, to fulfil potential through sustainable formal employment or self-employment (or entrepreneurship). The success of interventions promoting employability depends on the availability of employment opportunities to address the dual challenges of providing decent work and green jobs by avoiding economic growth that is jobless, ruthless, voiceless and futureless.  Sound macroeconomic and labour market policy reforms may be conducive to employment-led growth in the long run. 

the workability concept was developed in Finland, by the Finnish Institute of Occupational Health back in the 1990s.  You can find out more at http://www.ttl.fi/en/health/wai/multidimensional_work_ability_model/pages/default.aspx

Not necessarily if the employability is legislated. In the event it is market-driven, and if it is any indication of the labor market, it would be an indication of its diversification. And to that extent it tells us of the efficiency of the labor market. A labor market built around one or two major employment sector is usually a sign of a lack in economic diversification or rather one that is overly- regulated. We encounter such situations with commodity-based economies, and less so with services-driven based economies. Though some countries have attempted a drastic shift from nature/commodities to services/knowledge-centric  growth with dire consequences.

Thanks all.

Sharing some updates on a number of recent  associated policy work.

https://www.researchgate.net/publication/305687139_Priority_policy_recommendations_for_transforming_individual_productivity_and_SME_competitiveness_in_Jamaica

https://www.researchgate.net/publication/299604127_Human_Factors_Affecting_Productivity_in_Jamaica_Technical_Report_on_Preliminary_Findings

https://www.researchgate.net/publication/299747565_Towards_a_talent-driven_outward-oriented_globally-competitive_SME_framework_Discussion_Paper

Technical Report Human Factors Affecting Productivity in Jamaica: Technical R...

Technical Report Priority policy recommendations for transforming individual ...

Technical Report Towards a talent-driven outward-oriented globally-competitiv...

I'm sorry this is only in Spanish, but just in case this is accesible for you: I wrote a critical assessment on employability surveys from a Spanish-British perspective a couple of years ago: https://www.researchgate.net/publication/280577746_Analisis_de_la_empleabilidad_como_indicador_de_la_calidad_universitariaque_nos_ensenan_las_experiencias_anglosajonas

Preprint Análisis de la empleabilidad como indicador de la calidad un...

The term itself is ambiguous concept to understand whether it   provides an indicator of the efficiency and effectiveness of a labour market. Considering that employability( be it be at individual or institutional level), relates to the propensity to obtain a job , employment alone cannot always be treated as indicator of both performance efficiency and effectiveness and their tradeoff without knowing  the role played by employers , for it is the employers who convert the ‘employability’ of individual into employment regardless of quality improvement.