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Measurement – session 7

Measurement – session 7. Employment & unemployment. 1 – “between theory and history”. Unemployment: between theory and history. Unemployment, ‘labor force’ are recent concepts Only appeared at the end of the 19th century More people coming to the cities and selling their work = “labor force”

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Measurement – session 7

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  1. Measurement – session 7 Employment & unemployment

  2. 1 – “between theory and history”

  3. Unemployment: between theory and history • Unemployment, ‘labor force’ are recent concepts • Only appeared at the end of the 19th century • More people coming to the cities and selling their work = “labor force” • Firms hiring and firing according to economic fluctuations • No possibility of going back to other types of work

  4. History = Unemployment can appear only when changes in economic activities translate into changes in employment contracts = When paid employment ( = wage earning = not self-employment) is the norm

  5. History • Also require policy relevance: why count these people as “unemployed”? • At the end of 19th c. appeared • Mutual help societies (workers contributing to an insurance system against temporary lack of employment) • Placement offices (registering as “out of work” to find a new job)

  6. History • Only when wage earning is the unequivocal reference do jobs and employment fluctuate together • Counter-example: France, 1931-1936: – 1.8 million jobs + 400 000 unemployed only • Rural population, women, youth simply left town / the “labor market”

  7. History • “unemployment” exists only in the context of paid work • An independent worker not working because s/he has no customer is not unemployed: • A family member not helping because there is no need to at the moment is not either = Changes in economic activity not translated into breach of work contracts and trying to find another job. Not unemployment

  8. The frontiers between the 3 classes Not in the LF Employment Chosen part-time Informal work Training Forced early retirement Discouraged workers Unwanted part-time (underemployment) Unemployment

  9. Economic theory • Usual paradigm of supply and demand in a frictionless environment • Unemployment = L supply (workers) – L demand (firms) • Focus on wages, the price of work: why do they not adjust S & D? • Minimum wage = obvious explanation

  10. Economic theory • Now more focus on job search, supply/demand skills mismatch, spatial mismatch… • Introduction of TIME and SPACE in the models • Supply and demand are linked dynamically: flow approach

  11. Economic theory • Impact on measurement: demand for measurement of flows, not just stocks of unemployed  Panel data necessary

  12. Unemployment rate : the basic definition • Idea: percentage of those who want to work who are deprived of work • Unemployed / total labor force • 2 things to study: • Measuring the labor force • Counting the unemployed

  13. 2 – The labor force

  14. The Labor Force • Ex: France

  15. The Labor Force • Ex: Egypt

  16. The Labor Force • Middle-East and North African Countries

  17. The Labor Force • A crucial point: age limits • OECD: 15-64 • Increasing employment rate (working / total population) is an explicit EU political goal: “strategic objective” stated in Lisbon in 2000 • Goal = 70% • Means increasing LF participation as well as reducing unemployment

  18. The Labor Force Employment rate of people aged 55-64 Average EU (25): 41%

  19. The Labor Force Employment rate of people aged 15-24

  20. The Labor Force Unemployment rate of people aged 15-24

  21. 3 – The ILO definition

  22. Unemployment: current definition • ILO: • « without work » • « currently available for work » • « seeking work »

  23. Unemployment: current definition • Is subject to interpretation : cf homework

  24. 4 – Specific issues in developing countries

  25. Specificities of developing countries (1/2): The education paradox • Sri Lanka

  26. Specificities of developing countries (1/2): The education paradox Egypt

  27. Specificities of developing countries (½): Competing explanations (a) The unrealistic wage expectations • hypothesis: “More educated workers seek jobs which would pay them more than the market is willing to pay, perhaps because workers possess the wrong set of skills.”

  28. Specificities of developing countries (½): Competing explanations (b) The queuing hypothesis: • The unemployed wait for an opportunity to take “good” jobs -- jobs in the civil service (stability, generous fringe benefits) and formal private sector. • By implication, the civil service wage premium attracts job-seekers to queue and thus generates unemployment.

  29. Specificities of developing countries (2/2): The complexity of flows • ILO : dropping the search criterion may be more appropriate in countries or situations “where the conventional means of seeking work are of limited relevance, where the labor market is largely unorganized or of limited scope, where labor absorption is, at the time, inadequate, or where the labor force is largely self-employed” (ILO, 1982)

  30. Specificities of developing countries (2/2) : The complexity of flows • Cyclical Movements in Unemployment and Informality in Developing Countries, IZA DP No. 3514. Mariano Bosch & William Maloney • Measure flows from / into • Formal employment • Informal paid work • Informal self-employment • Panel data, Mexico & Brazil

  31. The complexity of flows • Mexico: National Urban Employment Survey (Encuesta Nacional the Empleo Urbano, ENEU) • Quarterly household interviews in the 16 major metropolitan areas. • Long questionnaire: participation in the labor market, wages, hours worked, etc. • Tracks a fifth of each sample across a five quarter period

  32. The complexity of flows • Brazil: Monthly Employment Survey (Pesquisa Mensal de Emprego, PME) • Monthly household interviews in 6 of the major metropolitan regions (covering 25% of the national labor market) • Questionnaire = similar to the ENEU • Tracks each household during four consecutive months and then drop them from the sample for 8 months, after which they are reintroduced for another 4 months

  33. The complexity of flows • Divide employed workers into three sectors: • informal salaried (I), • informal self employed (S) • Formal sector workers (F) • Formal workers: working in firms licensed with the government, conforming to tax and labor laws • minimum wage directives • pension and health insurance benefits for employees • workplace standards of safety? etc. • Informal workers: owners of firms largely de linked from state institutions and obligations + their employees, not covered by formal labor protections

  34. 50 – 60% = employed in formal sector (F) • 25 – 35% = employed in informal sector (I) • 20 – 30% of the labor force= independent or self-employed workers (S) • Most of these are informal workers

  35. A note on missing information • Middle-East and North African Countries

  36. 5 – The European Labor Force Surveys

  37. A legally binding framework • European core statistics are subject to regulations • Eurlex_CR577_98.pdf

  38. How households are weighted • Initial weight : 560 • Final weight: around 700 • The weights on the respondents are calculated so that the total population by age and gender is the same as in the latest Census data (2007) • Non-respondents are replaced by households from same urbanization level, type of dwelling, number of rooms in the dwelling… All we known from the sample frame, the 1999 census (or by another new dwelling if did not exist in 1999)

  39. Data collection • 6 interviews, every 3 months  lasts for 1,5 year • 1st and last itw = face to face, usually at the respondent’s home • 2nd to 5th itw = by phone

  40. The « rotation bias »

  41. « The » unemployment figure • Big controversy in 2007 • The trend in monthly statistics from ANPE rolls was down • The LFS figure was stable • Insee was paralysed by technical debates (non response, rotation bias, confidence intervals)

  42. « The » unemployment figure • Confidence interval (95%) on unemployment rate is +/- 0,4 pts • This represents about 100 000 people

  43. « The » unemployment figure • Meaning: your 8,81% should rather be stated as “There is a .95 probability that the unemployment rate is in the interval: [8,4 ; 9,2]” • Monthly changes are impossible to record • How politically audible is that? Are the media willing to explain it?

  44. Current trends in LFS • The current evolution is towards a more complex LFS to better account for: • Self-employed • People with more than 1 job • Underemployment • The “unemployment” category is exploding along with the production model that saw it become prominent (full time job)

  45. 6 – Measuring the grey areas

  46. Measuring the “grey areas” • Being unemployed is a 0/1 variable • The notorious “halo”

  47. Measuring the “grey areas”

  48. 6 – Measuring policy outcome

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