Foundation Course: a note on labour market

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Foundation Course: a note on labour market

Bino Paul G D

In this note, we discuss four themes: Labour and Employment in Developing Countries, Labour Market

Flexibility, and Jobless Growth. While commodities and financial assets are being increasingly globalised,

persistently permeating through borders, global labour market in entirety appears to be embroiled in

diverse strata, segments, identities, spaces and structures. Quite important, even economies characterised

as free and open, albeit committed to instantaneities in commodity and financial markets, seem to defend

institutions that generate friction in mobility of labour across the border. Another distinct aspect of global

labour market is that changes in demographic structures often trigger off irreversible complexities,

impacting socio-economic-political systems. Quite important, notwithstanding heterogeneities and

dualities that characterise labour markets –developing-developed, formal-informal, blue collar-white

collar, employed-unemployed, skilled-unskilled, socially advantaged-socially disadvantaged and so on-,

there are some interesting general frames which can be useful in exploring basic aspects diverse labour

markets. One interesting frame is fusing labour market information with the demographic structure, that

enables to articulate informational clues on impending changes in socio-economic-political systems.

The labour market is one of the constituents of population. In other words, population is split onto two

components: persons who are in labour market and those who are not in labour market. Primarily, as

prevalent in labour markets, participation in labour market is conditional on if person’s age is not lower

than the minimum age prescribed by the law. For instance, in India engaging persons who are 14 and

below in paid work is illegal1. Those who are in labor force are either engaged in a paid work, called

employed or workers, or waiting (searching or not searching) an opportunity to engage in paid work,

called unemployed. Put differently, while labour force and persons who are not in labour force form

population, employed and unemployed constitute the labour force. This structure may be presented in a

capsular manner:

P = L + N

P = Population, L = Persons who are in labour force, N= persons who are not in labour force

L = E + U

E = Employed Persons or workers, U = Persons who are unemployed

From above equations, we derive three indicators: Work Participation Rate (WPR), Labour Force

Participation Rate (LFPR), and Rate of Unemployment (R). WPR refers to employed or workers as a

1 http://indiacode.nic.in/coiweb/amend/amend86.htm

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proportion of total population2. Another variant of WPR, defined by International Labour Organisation

(ILO), is employment-to-population ratio. LFPR is the ratio of labour force to population. R may be

defined as unemployed as a proportion of labour force.

WPR =

LFPR =

R =

Further, E is classified into three categories: self employed (S), regular wage-salaried employees

(R), and casual work (C)3. Drawing cues from National Sample Survey (NSS) of Ministry of

Statistics Programme and Implementation, S consists of own account worker, employer, and

working as a helper in household enterprises. R subsumes whole range of employment for which

workers are paid in regular intervals (for example monthly) for a continuous engagement in paid

work. On the other hand, workers who belong to category C are engaged in paid activities that

lack continuity. Box 1 presents International Labour Organisation’s (ILO) definitions of

employment.

2http://censusindia.gov.in/Metadata/Metada.htm 3 http://atlmri.org/index.php/downloads/doc_download/14-india-labour-market-report-2008

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Box 1: ILO’s definitions4

4 http://kilm.ilo.org/manuscript/kilm02.asp

The “employed” comprise all persons above a specified age who during a specified brief period, either one week or one day, were in the following categories:

“Paid Employment”:

i. “at work”: persons who during the reference period performed some work for wage or salary, in cash or in kind;

ii. “with a job but not at work”: persons who, having already worked in their present job, were temporarily not at work during the reference period and had

a formal attachment to their job. This formal job attachment should be determined in the light of national circumstances, according to one or more of

the following criteria: (i) the continued receipt of wage or salary; (ii) an assurance of return to work following the end of the contingency, or an

agreement as to the date of return; (iii) the elapsed duration of absence from the job which, wherever relevant, may be that duration for which workers can

receive compensation benefits without obligations to accept other jobs;

“Self-Employment”

i. “at work”: persons who during the reference period performed some work for profit or family gain, in cash or in kind;

ii. “with an enterprise but not at work”: persons with an enterprise, which may be a business enterprise, a farm or a service undertaking, who were

temporarily not at work during the reference period for any specific reason.

For operational purposes, the notion of “some work” may be interpreted as work for at least one hour. Persons temporarily not at work because of illness

or injury, holiday or vacation, strike or lock-out, educational or training leave, maternity or parental leave, reduction in economic activity, temporary

disorganization or suspension of work due to such reasons as bad weather, mechanical or electrical breakdown, or shortage of raw materials or fuels, or

other temporary absence with or without leave should be considered as in paid employment provided they had a formal job attachment. Employers,

own account workers and members of producers’ cooperatives should become considered as in self-employment and classified as “at work” or “not

at work”, as the case may be. Unpaid family workers at work should be considered as in self-employment irrespective of the number of hours worked

during the reference period. Countries which prefer for special reasons to set a minimum time criterion for the inclusion of unpaid family workers among the

employed should identify and separately classify those who worked less than the prescribed time. Persons engaged in the production of economic goods

and services for own and household consumption should be considered as in self-employment if such production comprises an important contribution to

the total consumption of the household. Apprentices who received pay in cash or in kind should be considered in paid employment and classified as “at

work” or “not at work” on the same basis as other persons in paid employment. Students, homemakers and others mainly engaged in non-

economic activities during the reference period, who at the same time were in paid employment or self-employment as defined in subparagraph (1) above,

should be considered as employed on the same basis as other categories of employed persons and be identified separately, where possible. Members of

the armed forces should be included among persons in paid employment. The armed forces should include both the regular and the temporary members as

specified in the most recent revision of the International Standard Classification of Occupations (ISCO).

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Chart 1 demonstrates computation of WPR, LFPR and R.

Chart 1: An exercise on computing WPR, LFPR and R

Population (P) 2500

Labour Force (L) 1800

Not in Labour Force (N) 700

Employed (E) 1650

Unemployed (U) 150

Work Participation Rate (WPR=E/P*100) 66

Labour Force Partition Rate (LFPR = L/P*100) 72

Rate of Unemployment (R = U/L * 100) 8.3

As shown in Table 2, in the world, percentage of persons who are below 15 years is projected to decline

from 27% to 20% while percentage of persons who are above 60 years may increase from 11% to 22%

during 2010-2050. In Africa, during this period, proportion of above 60 is likely to increase from 5% to

11% while proportion of below 15 may decline from 40% to 27%. Drawing cues from projected numbers

given in Table 2, in 2050 percentage of above 60 years across major areas may vary between 11% and

34% -Africa reporting the lowest and Europe showing the highest-. Within Asia, in 2050 East Asia may

report the highest percentage of aged population (above 60) i.e. 32% while central Asia is projected to

report the least i.e. 19%.

Table 1: Proportions of Persons who are less than 15 years and Persons who are above 60 years

Major area, region or country

Persons who are less than 15 years Persons who are above 60 years

(% of total population) (% of total population)

2000 2005 2010 2030 2050 2000 2005 2010 2030 2050

World 30.3 28.4 26.9 22.7 19.6 9.9 10.2 11.0 16.5 21.9

Africa 42.4 41.2 40.3 34.0 27.3 5.1 5.2 5.4 6.9 10.6

Asia 30.8 28.2 26.2 21.1 17.9 8.5 9.1 9.9 16.7 23.6

Eastern Asia 24.6 21.2 19.2 16.3 14.9 11.2 12.3 13.9 24.6 32.1

South-Central Asia 35.8 33.6 31.3 23.9 19.3 6.5 6.8 7.2 11.8 19.0

South-Eastern Asia 31.8 29.4 27.2 21.5 18.3 7.5 8.0 8.7 15.8 23.3

Western Asia 35.5 33.3 31.5 25.2 20.5 6.7 6.7 7.0 11.6 18.6

Europe 17.6 15.9 15.4 14.7 15.0 20.3 20.6 22.0 29.3 34.2

Latin America and the Caribbean 31.8 29.8 27.7 20.5 17.0 8.3 9.0 10.0 17.1 25.5

North America 21.3 20.5 19.8 17.8 16.9 16.2 16.8 18.4 25.6 27.8

Oceania 25.8 25.0 24.2 21.4 19.1 13.4 14.0 15.4 21.0 23.9

Source: International Labour Organisation (ILO) (2010), World social security report 2010, Geneva: ILO

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Combining below 15 years and above 60 years of population, we get total count of dependants in a

demographic system. Expressing this count as a percentage of population in the age group of 15-60 is called

Total Dependency Ratio (TDR). Further,

Total Dependency Ratio (TDR) =

As shown in Table 2, TDR for the whole world is projected to increase from 53% to 56% during 2010-

2050. While TDR for Africa may decline steeply from 78% to 53% during this period, the ratio is likely to

increase steeply from 46% to 74% in Europe. Contrary to steady increase of TDR in Asia during 2010-

2050, South-central Asia my see TDR dropping from 56% to 49%.

Table 2: Total Dependency Ratio


Total dependency ratio (%) (Persons who are in the age group

of below 15 and above 60 as a percentage of population in the age

group of 15-60)

2000 2005 2010 2030 2050

World 59.1 55.3 52.7 52.3 56

Africa 83.9 80.2 77.6 62.6 52.5

Asia 57.4 52.5 49.0 48.2 54.4

Eastern Asia 47.7 42.7 40.3 50.3 65.1

South-Central Asia 66.6 61.3 56.3 46.7 48.5

South-Eastern Asia 58.0 53.4 49.4 47.5 55.3

Western Asia 66.8 61.2 56.7 49.0 51.3

Europe 47.8 46.6 46.3 59.6 73.5

Latin America and the Caribbean 60.2 56.4 52.8 48.8 57.5

North America 50.9 49.2 49.1 60.9 63.6

Oceania 55.6 54.3 53.8 59.7 60.6


Across regions, in 2010, LFPR of male is higher than that of female (Table 3). While the gap in LFP is

discernibly wider in regions like South-Central Asia and Western Asia, the gap is thinnest in Europe and

North America. It is important to note LFPR for female in South-central Asia is 38 % while the same

indicator for male is 84 %. The variation in LFPR across regions may have its roots not just in economic

development but in levels of gender equity. As regards gender difference in work, pattern in Table 3 is

valid for youth employment as well. As depicted in Table 4, South Central Asia reports widest gap in

WPR of male and female. Quite important, Europe shows lowest WPR, notwithstanding slender gap

between male and female, is because this region reports higher rate of participation of youth in higher

education.

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Table 3: Labour Force Participation Rate (LFPR) Major area, region or country Labour Force Participation Rates of population at ages 15-64 (%) (LFPR)

Total Male Female

2000 2005 2010 2020 2000 2005 2010 2020 2000 2005 2010 2020

World (total) 70.33 69.91 69.86 69.81 83.64 82.9 82.57 82.66 56.72 56.62 56.85 56.58

Africa 67.69 68.08 68.8 70.01 81.51 81.27 81.55 81.8 54.13 55.09 56.19 58.25

Asia 71.07 70.03 69.54 68.98 85.62 84.54 83.91 83.95 55.8 54.81 54.47 53.19

Eastern Asia 81.4 79.4 78.6 78.1 87.6 85.4 84.4 84.4 74.8 73.2 72.5 71.4

South-Central Asia 61.4 61.5 61.9 62.5 84.6 84.5 84.2 84.7 36.7 37.2 38.3 39.1

South-Eastern Asia 72.6 72.3 72.1 72.2 85.3 85 84.4 84.3 60.1 59.7 59.9 60.1

Western Asia 53.8 53.7 53.2 52.3 77.5 77.2 76.3 75.1 28.1 28.1 28.1 27.7

Europe 68.69 69.81 70.93 71.86 76.07 76.34 76.93 77.2 61.47 63.42 65.04 66.58

Latin America and the Caribbean 66.69 68.22 69.15 69.96 83.58 83.27 82.84 82.27 50.23 53.59 55.86 57.95

South America 68.14 70.09 70.95 71.46 83.28 83.27 82.85 82.02 53.32 57.2 59.31 61.1

North America 76.8 75.1 74.57 74.81 83.26 81.14 80.31 79.93 70.37 69.07 68.83 69.59

Oceania 73.1 74.34 75.26 75.9 80.84 80.98 81.16 81.13 65.31 67.65 69.32 70.6


Table 4: Work Participation Rates


Work Participation Rates (WPR)

of population at ages 15-24 (%)

Total Male Female

2008 2008 2008

World 44.7 51.4 37.5

Africa 45 50.9 39.1

Asia 45.1 52.6 37

Eastern Asia 52.8 48.6 57.4

South-Central Asia 41.6 57.5 24.6

South-Eastern Asia 42.4 56.2 27.8

Western Asia 27.8 39.2 15.8

Europe 35.8 38.6 32.9

Latin America and the Caribbean 45.2 55 35.2

North America 51.6 52.4 50.8

Oceania 59.6 60.6 58.5


As shown in Table 5, in the whole world one third of employment comes from agriculture while slightly

above two fifth emanates from service and the rest from industry. However, sector wise composition of

employment varies across regions. Share of agriculture in employment varies between 4% (Developed

Economies and European Union) and 62% (sub Saharan Africa). While service sector generates three

fourth of employment in developed economies and European Union the share of service sector in

employment in Sub-Saharan Africa is slightly lesser than one third. Rate of unemployment (R) varies

between 4% and 10%. While South Asia reports the least R Middle East reports the highest. Another key

indicator to compare regions is share of vulnerable employment in total employment. The vulnerable

employment is defined as the sum of own account workers and unpaid family workers (see Box 1),

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indicating the spread of informal work. ILO (2009, p. 27)5 notes “Vulnerable employment is a newly

defined measure of persons who are employed under relatively precarious circumstances as indicated by

the status in employment. Because contributing family workers and own account workers are less likely to

have formal work arrangements, access to benefits or social protection programmes and are more “at

risk” to economic cycles, these are the statuses categorized as “vulnerable”.”

A half of world’s employs is vulnerable, not provisioning basic entitlements like social security and other

requisite aspects of decent work to workers. Across regions, share of vulnerable employment varies

between 10% (Developed Economies and European Union) and 78% (South Asia).

Table 5: Composition of Employment and Select Indicators

Composition of

Employment (2010)

Region Agriculture Industry Service

Rate of

Unemployment (R) 2010

Share of Vulnerable

employment (%) 2010

World 34 22.1 43.9 6.1 49.6

Developed Economies and

European Union 3.7 22.5 73.8 8.8 10

Central and South Eastern Europe

(non EU and CIS) 20.6 24.4 55 9.5 20.9

East Asia 34.9 28.6 36.5 4.1 49.6

South East Asia and the Pacific 42.5 18.2 39.3 4.8 62.3

South Asia 51.4 20.7 27.9 3.9 78.4

Latin America and the Caribbean 16.2 22.2 61.6 7.2 31.9

Middle East 16.9 25.7 57.4 9.9 29.8

North Africa 28.5 21.8 49.7 9.6 37.7

Sub-Saharan Africa 62 8.5 29.5 8.2 76.9

Source: compiled from ILO (2012), Global employment trends 2012

It is important to note that the group “self employed” are not necessarily entrepreneurs who engage in

ventures for profits and wealth. Rather, most of these workers, who are self-employed pursue livelihoods

for generating income for sustaining the life in an urban space, are likely to have either migrated from

remote villages or towns or be second generations who encounter the struggles of urban life such as

human development deficits and unemployment. Across Asian regions, except Middle East, share of own

account workers –e.g. street vendors-, principal constituent in this segment, increased during 1996-2006

(Table 6). In 2006, own account workers formed 47% of total employment in South Asia, while 38% of

employment in East Asia comes from this category.

5 ILO (2009), Guide the new Millennium Development Goals Employment Indicators, Geneva: ILO; see http://www.ilo.org/wcmsp5/groups/public/@ed_emp/documents/publication/wcms_110511.pdf

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Table 6: Category of Employment (% of total employment)

Wage and Salaried

Worker Employers

Own-Account

Worker

Contributing Family

Workers

1996 2006 1996 2006 1996 2006 1996 2006

World 43.1 46.9 3.4 2.9 30.8 33 22.7 17.2

East Asia 32.4 42.6 2.8 1.2 33.4 38.2 31.4 18

South-East Asia and the Pacific 33 38.8 2.1 2.1 34.8 35.2 30.1 23.9

South Asia 17.1 20.8 1.5 1 45.6 47.4 35.8 30.8

Middle East 58.5 61.5 3.9 5.2 28.6 22.6 9 10.6

Source: ILO, key Indicators of the Labour Market (2008)6

Although this segment of labour market is quite important for the sustenance of global cities, services of

these segments are relatively undervalued by governing systems, thus, making contributions relatively

invisible. As shown by Bhowmik (2005), describing cases of street vendors in eight Asian countries –

Bangladesh, Sri Lanka, Thailand, Philippines, Vietnam, Cambodia, South Korea and India-, governments

need to provide essential entitlements, such as security in public space and social security, for this

segment7,8. Interestingly, street vending is showing significant growth in principal urban centers in these

eight countries. Primarily, this growth originates from two sources: (a) low skilled in migrants in countries

like India, Bangladesh, Nepal, Cambodia and Vietnam, (b) workers who were earlier in the formal sector

in countries such as Philippines, South Korea, Thailand, Malaysia, Indonesia and India. Further, the

correspondence between non wage segment of workforce and poverty is quite discernible from Table 7.

Those countries with more 75% of population living on less than $2 purchasing power parity (PPP) per

day show majority of workers are engaged in non wage work in mainly South Asian countries like India,

Bangladesh and Nepal9. On other hand, East Asian countries like Japan, South Korea, and Singapore

show lower share of non wage employment and lower level of poverty. It is important to note that share

of population above legal retire age in receipt of pension is not even 1/3rd in Asia, while the coverage is

more than 3/4th in North America and Western Europe (Table 8).Similar contrast exists for proportion of

Active contributors to a pension scheme in the working-age population, too.

6 See http://www.ilo.org/public/english/employment/strat/klim/index.htm 7 Bhowmik puts (p 2264) “though the Asian countries have witnessed an increase in street vendors, their governments are by and large indifferent to the specific needs of this sector. Street vendors perform an important role in providing services to the urban population, especially the poor.

Their contributions are unfortunately hardly ever recognized by the governments.” Bhowmik, S K (2005), Street vendors in Asia: a

review, Economic and political weekly, 40, pp 2256-2264 8 Another growing segment of informal workforce in Asia, who are relatively invincible and vulnerable to low human development, is home

based work by women in economic activities like weaving and apparel (see Chen at al., 1999). Also see Mehrotra and Mario (2007). Mehrotra

S., Mario B. (2007) (Ed.), Asia informal workers: global risks, local protection, New York: Routledge. 9 Between 2000 and 1990, people living on $1 a day declined from above 2/5th to slightly above 1/3rd, while the ratio for China fell from 1/3rd to 1/10th (ESCAP, 2008).

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Table 7: Proportion of Non wage workers and poverty level (2009) in Asia

Non wage workers as % of Total Employment

Proportion of population living on less than $2 PPP per day

Japan Less than 20% Less than 2%

Singapore Less than 20% Less than 2%

Korea, Republic 20-40 Less than 2%

Kazakhstan 20-40 2.1-25

China 20-40 2.1-25

Malaysia 40-75 2.1-25

Iran, Islamic Republic 40-75 2.1-25

Thailand 40-75 2.1-25

Bhutan 40-75 25.1-50

Philippines 40-75 25.1-50

Mongolia 40-75 25.1-50

Sri Lanka 40-75 25.1-50

Vietnam 40-75 25.1-50

Indonesia 40-75 50.1-75

Pakistan 40-75 50.1-75

Cambodia 40-75 50.1-75

India 40-75 More than 75%

Bangladesh More than 75% More than 75%

Nepal More than 75% More than 75%

Source: ILO (2010)10

10 Based on People living on less than US$2 PPP per day: World Development Indicators

(Washington, DC, World Bank, 2009); Non-wage workers as a percentage of total employment from ILO, LABORSTA, table 2+A7D: Total employment, by status in employment (thousands); Key Indicators of the Labour Market (KILM) (ILO 2009h), on KILMnet (September 2009), table 3: Status in employment (by sex)

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Table 8: Coverage of Pension

Effective extent of coverage


Share of population above legal retirement age in receipt of a pension (%)

Active contributors to a pension scheme in the working-age population (%)

World 40.2 26.4

Sub-Saharan Africa 15.6 5.4

Africa 17.6 10.4

Asia and the Pacific 30.9 18.0

Middle East 27.3 21.7

North Africa 28.4 28.5

Latin America and the Caribbean 50.3 36.6

CIS 94.0 39.6

Central and Eastern Europe 87.3 50.0

Western Europe 92.7 65.3 North America 75.6 72.4

Source: ILO (2010)11

Quite important, labour markets are relatively complex than other exchange systems in particular

matching expectations of employers and employees. For example, it is quite likely that a profit

maximizing firms would be interested in economising wages and number of empployees while employees

would aspire to attain more decency in working and living condition, leaving potent space for prospective

stand offs between employer and employees. Juxtaposing employer’s proclivity for maximum profit and

workers’ quest for better wages and working and living conditions, in view of economizing resources that

are put into business or production processes, employers deploy strategies to infuse flexibilities in

engaging workers by adjusting variables like number of workers, organisation of work force, wage and

work hours, called labour market flexibility. Chart 2, drawing cues from Sen & Dasgupta (2009) provides

a typology of flexibility: numerical, functional, wage and working time. While employers are exploring

new vistas of labour market flexibility, it appears world is witnessing the phenomenon of jobless growth.

A basic barometer of job creation is Employment Elasticity (EE) that is defined as a ratio of

proportionate change in employment to proportionate change in Gross Domestic Product (GDP). EE is

expresses as:

Employment Elasticity (EE) =

If EE is one, there is symmetry between growth in employment and growth in GDP, implying that as

GDP increases by 10%, there will be 10% increase in employment too. As shown in Table 9, during

11 International Labour Organisation (ILO) (2010), World social security report 2010, Geneva: ILO

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2004-08, EE for the whole world is just 0.3. Across regions EE varies between 0.1 (East Asia) and 0.7

(Middle East & North Africa)

Chart 2: Labour Market Flexibility

Type of Flexibility Processes and effects

Numerical Adjustments in the number of workers tied to changes in market demand and technological innovations. Result in shedding of workers whose skills have become obsolete and hiring of workers through contractual or temporary arrangements so that this workforce can be laid off easily when situation demands.

Functional Reorganisation of workforce by a firm at varying levels due to technological changes. Job rotation, multi-skilling, retraining and internal mobility are adopted to achieve functional flexibility. Reduces labour cost and helps the firm carry out tasks with existing workers. Results in no incentive to firms to have additional hiring of workers.

Wage Adjusting of wages according to changing cost competitiveness and product demand in the market. Regulations such as minimum wages are seen as a hindrance to this form of flexibility. This form of flexibility will help in adjustment needed in market clearance in the labour market.

Working Time (Temporal)

Adjustment and utilisation of labour hours(working time) according to seasonal variations in the product demand. Helps the firm adopt practices of overtime work, part-time work, shift work and weekly or annual arrangement of work without making changes in the number of persons employed in a firm

Source: Sen, Sunanda and Byasdeb Dasgupta (2009). Unfreedom and Waged work: Labour in India’s Manufacturing Industry. New Delhi: Sage

Table 9: Employment elasticity and GDP growth rate Employment elasticity Average annual GDP growth rates

1992-

96

1996-

00 2000-04 2004-08

1992-

96 1996-00 2000-04

2004-

08

World 0.3 0.4 0.3 0.3 3.1 3.7 3.3 4.4

Developed Economies & European

Union 0.3 0.3 0.2 0.5 2.4 3.3 1.9 2.2

Central & South-Eastern Europe (non-

EU) 0.2 0.2 0.2 0.2 -5.5 3.2 6 6.7

East Asia 0.1 0.2 0.1 0.1 10.2 7 7.8 9.3

South-East Asia & the Pacific 0.3 0.1 0.3 0.4 7.8 1.6 4.9 5.8

South Asia 0.3 0.4 0.4 0.3 6 5.4 5.5 8.4

Latin America & the Caribbean 0.6 0.9 0.8 0.5 3.3 3 2.3 5

Middle East 1.1 1.5 0.7 0.7 2.9 3.3 5.1 5.7

North Africa 0.8 0.6 0.8 0.7 2.3 4.3 4.3 5.6

Sub-Saharan Africa 0.7 0.7 0.5 0.5 2.9 3 6 6.1

Source: ILO Trends Econometric Models. See box 3 in “Guide to understanding the KILM” for more information on estimation,

http://kilm.ilo.org/KILMnetBeta/pdf/kilm19EN-2009.pdf

Foundation Course: a note on labour market

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