Measurement session 7

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Measurement session 7

• Employment unemployment

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1 between theory and history
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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

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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

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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)

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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

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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

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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
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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

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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

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Economic theory

• Impact on measurement demand for measurement of
  flows, not just stocks of unemployed
• ? Panel data necessary

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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

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2 The labor force
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The Labor Force

• Ex France

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The Labor Force

• Ex Egypt

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The Labor Force

• Middle-East and North African Countries

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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

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The Labor Force

• Employment rate of people aged 55-64

Average EU (25) 41
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The Labor Force

• Employment rate of people aged 15-24

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The Labor Force

• Unemployment rate of people aged 15-24

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3 The ILO definition
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Unemployment current definition

• ILO
•  without work 
•  currently available for work 
•  seeking work 

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Unemployment current definition

• Is subject to interpretation cf homework

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4 Specific issues in developing countries
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Specificities of developing countries (1/2) The
education paradox

• Sri Lanka

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Specificities of developing countries (1/2) The
education paradox

• Egypt

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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.

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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.

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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)

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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

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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

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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

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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

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• 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

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A note on missing information

• Middle-East and North African Countries

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5 The European Labor Force Surveys
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A legally binding framework

• European core statistics are subject to
  regulations
• Eurlex_CR577_98.pdf

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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)

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Data collection

• 6 interviews, every 3 months ? lasts for 1,5 year
• 1st and last itw face to face, usually at the
  respondents home
• 2nd to 5th itw by phone

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The  rotation bias 
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 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)

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 The  unemployment figure

• Confidence interval (95) on unemployment rate is
  /- 0,4 pts
• This represents about 100 000 people

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 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?

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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)

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6 Measuring the grey areas
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Measuring the grey areas

• Being unemployed is a 0/1 variable
• The notorious halo

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Measuring the grey areas
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6 Measuring policy outcome
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Measuring a policy outcome

• Self-Sufficiency Project (SSP) a Canadian
  research and demonstration project
• Idea make work pay for long-term income
  assistance (IA) recipients by supplementing their
  earnings.
• Lone parents on IA qualified for a generous
  earnings supplement if they took up full-time
  work and left the welfare rolls within 12 months
  of entering the project.
• Once qualified, they received a supplement that
  roughly doubled their pretax earnings during
  periods of full-time work in the next three years

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Measuring a policy outcome

• 2 Canadian provinces
• British Columbia
• New Brunswick
• November 1992 to December 1999

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Measuring a policy outcome the experimental
design

• Evaluation whether participation in SSP resulted
  in increased earnings and employment ?
• A social experiment participants randomly
  divided into a program group and a control group.
  
• A series of surveys a baseline survey at the
  point of random assignment and follow-up surveys
  18, 36 and 54 months after random assignment
  was undertaken by Statistics Canada.
• Program designers theorized that the SSP earnings
  supplement would induce women who would otherwise
  have stayed on IA to enter and remain in the
  labor force.

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Measuring a policy outcome waiting for 3 years
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Measuring a policy outcome waiting for 4 years
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Lessons to be learnt

• Numerator is obvious but always remember the
  denominator
• The population over which you compute a figure
  (ex age limits) matter a lot (ex labor force
  participation)
• Confidence intervals do not sell well yet
• Trying to describe grey zones with a couple of
  figures is not a lost cause

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Lessons to be learnt

• Long term policy outcomes are worth examining