Labor Market Indicators for low/middle-income countries Paul Cichello May 1, 2009 The 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