International Labour Organization

labour market policies an introductory elaborated by Fred Fluitman Presented by Mostefa Boudiaf International Training Centre of the ILO Turin, Italy, 2007

among sources: ILO, World Employment Report 1998/99 Betcherman, G. An Overview of Labor Markets World-Wide: Key Trends and Major Policy Issues, World Bank, 2002 Freeman, R.B.Labor Market Institutions and Policies: Help or Hindrance to Economic Adjustment?, 1993

labour market policies measures meant to address failure in labour markets, in particular measures that reduce unwanted distortions in the process of supply meeting demand. see Godfrey’s draft manual pp10-11

labour the Oxford Dictionary: physical or mental work; exertion; toil economists: a production factor the International Labour Organisation: “labour is not a commodity” Explain labour vs. employment (i.e. the use made of the production factor labour; cf. implicare in Latin, i.e. to enfold) manpower:men and women in the labourforce cite the Philadelphia Declaration:

labour force all those above a specified age, and during a specified brief period, who are either working, or available for work and seeking it also known as the economically active population Check ILO definition what is “working” = economically active but excludes in particular (women’s) domestic chores refer to quality factor; indicator = levels of education and skill

labour force “the currently active population” Check ILO definition what is “working” = economically active but excludes in particular (women’s) domestic chores refer to quality factor; indicator = levels of education and skill “the currently active population”

labour force wage-employed self-employed under-employed unemployed visible invisible *Employment data are always expressed as a percentage of the labour force; e.g an unemployment rate of five per cent means that one of every twenty economically active, i.e. labour force participants, is not working and actively looking for a job. *Introduce notion of employment status (wage-employment, self-employment, unpaid family worker, employer , if not included among self-employed) *Major differences among countries by level of development *unemployment= open unemployment: define = very strict therefore low unemployment in (developing) countries without social safety nets *under-employment (is not part-time work) = disguised unemployment , involuntary because: less hours worked than wanted (visible, i.e measurable) below level of capacity (invisible) (more people employed than needed) low productivity as a result of poor health or nutrition or because lack of complementary inputs *See ILO/ARTEP 1992 box on p.33 (features of un- and underemployment in LDC’s) *EXERCICES: calculate from raw data ( aa, bb, cc, dd) (by sex and education level) labour force participation rates, unemployment rates, …..

labour force: stock and flow leaving entering stock 31 december 2001 stock 31 december 2002 staying *Employment data are always expressed as a percentage of the labour force; e.g an unemployment rate of five per cent means that one of every twenty economically active, i.e. labour force participants, is not working and actively looking for a job. *Introduce notion of employment status (wage-employment, self-employment, unpaid family worker, employer , if not included among self-employed) *Major differences among countries by level of development *unemployment= open unemployment: define = very strict therefore low unemployment in (developing) countries without social safety nets *under-employment (is not part-time work) = disguised unemployment , involuntary because: less hours worked than wanted (visible, i.e measurable) below level of capacity (invisible) (more people employed than needed) low productivity as a result of poor health or nutrition or because lack of complementary inputs *See ILO/ARTEP 1992 box on p.33 (features of un- and underemployment in LDC’s) *EXERCICES: calculate from raw data ( aa, bb, cc, dd) (by sex and education level) labour force participation rates, unemployment rates, ….. flows

*Employment data are always expressed as a percentage of the labour force; e.g an unemployment rate of five per cent means that one of every twenty economically active, i.e. labour force participants, is not working and actively looking for a job. *Introduce notion of employment status (wage-employment, self-employment, unpaid family worker, employer , if not included among self-employed) *Major differences among countries by level of development *unemployment= open unemployment: define = very strict therefore low unemployment in (developing) countries without social safety nets *under-employment (is not part-time work) = disguised unemployment , involuntary because: less hours worked than wanted (visible, i.e measurable) below level of capacity (invisible) (more people employed than needed) low productivity as a result of poor health or nutrition or because lack of complementary inputs *See ILO/ARTEP 1992 box on p.33 (features of un- and underemployment in LDC’s) *EXERCICES: calculate from raw data ( aa, bb, cc, dd) (by sex and education level) labour force participation rates, unemployment rates, …..

the market

the market

the market exchange exchange supply demand supply demand allocation and price fixing buy, rent borrow, hire buy, rent borrow, hire supply demand supply demand

the vegetable market production exchange consumption supply demand sell &buy rice or potatoes supply demand

the housing market production exchange use supply demand sell&buy or rent a house supply demand

the money market production exchange use supply demand lend & borrow

the labour market employer, or worker, or employment potential opportunity worker, or potential worker

the labour market production exchange use supply demand offer&hire of labour potential supply demand

the labour market production exchange use supply demand allocation and price fixing supply demand

labour market the virtual space where, in a more or less organised manner, the demand for and the supply of all sorts of labour will meet and where wages are determined In labour markets, exchanges are taking place: negotiations between employers and workers (or their representatives). The employer, ready to employ a certain quantity and quality of workers, considers alternatives to hiring labour, if any exist, in the light of the wages he (or she) is expected to pay; workers consider alternative jobs (if available) in the light of wages offered and other conditions of employment. The outcome of their respective considerations may or may not be a match; if it is, there is a price (wage) the employer is willing to pay and the worker is prepared to accept. At the end of the day, however, it may turn out that the supply of labour exceeded the demand, or vice versa. The imbalance may or may not be explained in terms of wage levels. If employers don’t find enough candidates they may wish (or have to) raise the wage they had in mind, and if there are too many they would certainly be tempted to lower it. But then, the workers they are looking for may not exist whatever the wage offered, or, in the alternative case, there may be a legal minimum wage, even in circumstances where there are by far not enough jobs for all who are seeking one.

free? market? in free (labour) markets the forces of supply and demand are allowed to operate unhampered by government regulation or other interference; decisions by individual “buyers” and “sellers”are coordinated by movement in prices.

free? market? in reality, free labour markets don’t exist: labour is not a commodity people have rights competition is far from perfect contractual relationship inherently unbalanced considerable information problems decisions are subject to regulation formal or informal

regulation different mixes of three modes of regulation: statutory, i.e. through laws and decrees hiring, firing, job security minimum wages “voice”, i.e. through collective bargaining wages and other working conditions market-based

regulation opposing views on its employment outcomes: Freeman(1993): the “institutionalist” view the “distortionist” view

regulation the “institutionalist” view: regulation ensures social protection seen as instrumental in productivity growth (training, accumulating firm-specific skills) and as a means of moderating the effects of downswings in aggregate demand

regulation the “distortionist” view: institutional forms of regulation impede adjustment to economic shocks, discourage hiring, and favour “insiders” (regular workers, mostly prime-age males) over “outsiders” (e.g.women and young workers)

regulation at the international level the ILO Declaration on Fundamental Principles and Rights at Work (1998) freedom of association and the effective right to collective bargaining the elimination of all forms of forced or compulsory labour the effective abolition of child labour the elimination of discrimination in employment and occupation

labour market industrialised country Between 1996 and 1999 both the demand and supply in this imaginary labour market increased. Only in 1998 did demand outstrip supply, meaning that certain vacancies remained unfilled and, probably, that certain wages were under an upward pressure. The equilibrium found in early 1999 is more likely, however, an outcome of factors other than wage levels, notably the sudden economic crisis starting in mid-1998 and manifest in a drastic reduction in domestic output. By the way, what exactly do the figures on the vertical axis tell us? Let the group decide but the answer is: “nothing really”. Is the triangle of 1998 an indication of the number of unemployed? industrialised country

structural over-supply labour market structural over-supply Between 1996 and 1999 both the demand and supply in this imaginary labour market increased. Only in 1998 did demand outstrip supply, meaning that certain vacancies remained unfilled and, probably, that certain wages were under an upward pressure. The equilibrium found in early 1999 is more likely, however, an outcome of factors other than wage levels, notably the sudden economic crisis starting in mid-1998 and manifest in a drastic reduction in domestic output. By the way, what exactly do the figures on the vertical axis tell us? Let the group decide but the answer is: “nothing really”. Is the triangle of 1998 an indication of the number of unemployed? developing country

employment in developing countries rural urban wage- employment self- informal sector agriculture non-agric.

factors affecting labour markets affecting both supply and demand side failing institutions labour market information political instability, conflict natural disasters health crises

factors affecting labour markets affecting the supply side population growth changes in labour force participation migration within and between countries the state of education and training

factors affecting labour markets affecting the demand side: economic/financial crises changes in economic structure technological change (ICT!) proces innovation product innovation globalisation

labour markets of developing countries structural over-supply of labour generally low levels of education and training significant un- and underemployment more self-employment than wage-employment large informal sector of the economy institutional forms of regulation remain modest

labour market policies production exchange use supply demand

labour market policies production e.g. investing in human resources

labour market policies exchange e.g. labour market information

labour market policies use e.g. social protection

active labour market programmes primary objectives: (re-) integration of the unemployed; productivity/income growth of under-employed to increase the supply of needed skilled workers (e.g. training employed and unemployed, programmes for the disabled) to increase the demand for workers (e.g. direct jobcreation, incentives to employers, self-employment/ SME promotion) to improve matching workers and jobs (e.g.job search assistance, public employment services, mobility incentives)

passive labour market programmes primary objective: income support to the unemployed early retirement severance pay unemployment insurance unemployment assistance public works programmes

globalisation trade liberalisation and export growth increase in direct foreign investment globalisation of financial markets rapid technological change information revolution

globalisation increasing competitiveness more flexible production systems labour market flexibilisation structural change privatisation

globalisation world-wide liberalisation of trade, investment and capital flows exports world-wide are rising as a proportion of GDP foreign direct investment flows have also risen sharply growth of global production systems, incl. intra-firm trade in intermediate products, subcontracting, licensing, franchising, and out-sourcing arrangements across national frontiers huge growth in volume of international trading in foreign exchange, bonds and equities, and new financial instruments

globalisation With a view to maintaining competitiveness in international markets and to safeguard their balance of payments, Governments are under pressure to get their macro-economic policies “right” , to minimise “market distortions”, and to improve “allocative efficiency”.

globalisation Hence, the widespread trend towards smaller government, including lower expenditure and taxes, reduced political support for redistributive measures, and deregulation of markets, including labour markets.

globalisation At the same time, the pace of technological change and product obsolescence has increased, as enterprises try to keep one step ahead of their competitors at home and abroad. The aim is for flexible production systems:

globalisation flexible automation, lean production, just in time delivery, total quality management, and flexible work forces

labour market segmentation supply supply demand demand demand supply

labour market segmentation women

labour market segmentation urban rural

labour market segmentation informal formal

labour market segmentation north east south west

labour market segmentation services other than commerce commerce manufacturing agriculture mining

labour market segmentation unskilled workers semi-skilled workers technicians and other skilled workers professional workers and managers

labour market indicators population and labour force growth labour force participation rates education levels per capita income data income distribution data

labour market indicators employment and unemployment data wages and earnings data output growth data labour productivity data employment elasticities

an introductory presentation by Fred Fluitman employment policies an introductory presentation by Fred Fluitman International Training Centre of the ILO Turin, Italy, 2002

employment policies according to the ILO (C122): all measures aimed, directly or indirectly, at promoting full, productive and freely chosen employment for women and men

such as policies which contribute to: sustainable economic growth an equitable distribution of income employment-intensive investment equal opportunities for all a healthier labour force greater employability and adaptability enhanced entrepreneurship the better functioning of labour markets ………………….

e.g. in the European Union: the European Employment Guidelines call for concrete and urgent action along four lines: employability entrepreneurship adaptability equal opportunities

employability making sure that people can develop the right skills to take up job opportunities in a fast changing world active measures, e.g. training, as soon as possible after becoming unemployed special help for groups facing the greatest difficulties in getting work, e.g.disabled people targets for life-long learning opportunities

entrepreneurship making it easier to start and run a business and to employ people in it reforms in tax systems cutting red tape training for small enterprises

adaptability developing new flexible ways of working to reconcile security and flexibility new forms of employment and innovative ways of work organisation making it easier and cheaper for companies to invest in training for their staff

equal opportunities equal access to jobs for women and men, equal treatment at work the same training and support opportunities for women and men to participate in the labour market on an equal footing active policies making it less difficult to combine working life with family responsibilities, and to return to the labour force after a long absence

employment and development

employment and poverty

the problem of poverty in developing countries is largely an employment problem: that of the working poor

no work means no income, means poverty

not enough work means not enough income, means poverty

low productivity means low income, means poverty

achieving growth in output, by increasing both the quantity reducing poverty means: achieving growth in output, by increasing both the quantity and the quality of labour inputs

achieving growth in output, by creating additional jobs reducing poverty means: achieving growth in output, by creating additional jobs and raising productivity

increasing productive employment for women and men + O E

pertinent policies: more productive workers more output more and better jobs more productive workers

more output fiscal and monetary reform removing trade restrictions broadening access to credit as well as access to technology investing in infrastructure

more and better jobs promoting the use of efficient, yet employment-intensive techniques reallocating investment in favour of labour-absorbing sectors targeting the disadvantaged improving conditions for small and micro-enterprises

more productive workers education and training heath and nutrition appropriate technology safety at work

the roots of poverty lacking sufficient (labour) income lacking assets (valuable possessions) inequality, discrimination lacking a voice, lacking power adverse shocks lacking social protection

reducing poverty as summed up by the ILO: by promoting decent work: productive employment for all respect for fundamental rights at work social protection social dialogue

reducing poverty creating an appropriate climate peace and stability social dialogue taking pertinent policy decisions sufficient “homework” a comprehensive, coherent, integrated approach political will and implementation capacity

reducing poverty addressing employment and income achieving high rates of sustainable growth ensuring that growth is employment-intensive without sacrificing productivity and efficiency providing the poor greater access to employment doing away with discrimination at work raising productivity (income) of the working poor in particular by addressing their (lack of) assets increasing terms of trade for what the poor produce

reducing poverty addressing assets addressing asset inequalities, access to assets boosting human capital: health, education, ... investing in physical capital, infrastructure, …. caring for natural assets: land, water, ….. allowing social assets to develop: networks, ... broadening access to financial assets: credit, ...

reducing poverty empowering the working poor respecting human rights and core labour standards giving people a voice boosting representation and social dialogue providing for effective decentralisation increasing social protection extending insurance schemes putting safety nets in place

employment policies