Labor Market Indicatorsfor low/middle-income countries

Paul Cichello

May 1, 2009The Employment Lab:

New Diagnostic Tools for Employment Focused

Development

Motivation

• Standard indicators inadequate in depicting labor market conditions in low/middle-income countries.

• LM characteristics in low-income settings: – low labor productivity, segmentation, subsistence or survival

employment, low regulation, low unemployment, self-employment and household labor activities, multiple jobs.

• Need for indicators that describe the “quality of employment”. – Primary focus: labor earnings.

Some standard indicators

• Labor force participation rate

• Employment-to-population ratio

• Unemployment rate

• Long-term unemployment

• Status in employment (waged and salaried, self-employed, unpaid family workers)

• Fraction of working-age population actively engaged in the labor market

• Fraction of working-age population employed

• Share of the labor force which is unemployed

• All unemployed persons for an extended period (1 year or longer)

• Fraction of employed population in waged and salaried job, etc.

Why aren’t they appropriate?

• In low-income countries, participation and unemployment are not an issue: – Think about family enterprises

• Unemployment rate is usually low: – Often high educated people from rich households, or – ex-formal worker looking for a new job while getting

unemployment subsidies

• Need to focus on employment, not just as an aggregate measure (ER, E-T-PR, UR, etc.), but on the distribution by status:1. Waged and salaried workers;2. Self-employed (without paid employees, own-account);3. Employers (Self-employed with paid employees);4. Unpaid family enterprise workers (contributing family

worker).

Cont.

Most of working-age population is employed, but workers are often underemployed and working poor.

How much are they earning?• Median earnings, all workers, wage and salaried

workers, self-employed, employers and household enterprise workers

• Low earnings rate, all workers, wage and salaried workers, self-employed, employers and household enterprise workers

Earnings

• Earnings considered primary measure of job quality

• Issues in developing countries: (1) Earnings data collected from wage and salaried workers only and (2) Significant share of unpaid workers

Distribution of earnings

Wage and salaried workers: Self-reported earnings in reference period

Household enterprise workers: Total household enterprise earnings in reference period (sum of reported earnings of own-account workers) distributed to own-account and unpaid workers in proportion to hours worked. Alternatively, run a profit function, predict profits and individual contribution to total profits, then split profits according to individual contribution.

Low Earnings Line

Low earnings line 1 = individual poverty line

Why individual poverty line? To see if the worker earnings enough to individually escape poverty

Low Earnings Line

Low earnings line 2 = individual poverty line x scaling factor for household dependency on individual earnings

Why scale up? Earnings of worker also typically used to support other members of the household

Proposed country-specific low earnings line: national individual poverty line x the median ratio of household members to working-age employed household members