Concepts of labour force participation and underutilisation

survey of 24,000 households the INS reversed itself and excluded housewives from the labour force. The net effect of all this is that the official unemployment figures in Tunisia are not immediately comparable from period to period.

And South Africa only includes "formal" employment in the numerator of its unemployment statistics and these are mainly white. But it includes the black labour force in the denominator, ignoring the fact that many of these work in "informal" type activities that, with the international definition, would be included in the persons employed figures. Consequently South Africa publishes ludicrously high "unemployment" rates in the range 40 to 50 per cent when the real figure is probably less than 20%¹. This does not mean that the employment problem is not severe in South Africa, simply that the problem is more one of underemployment and low labour utilization than one of unemployment per se. The implication of 45% unemployment rates has led the South Africans to worry about how to increase the number of "formal" jobs when a more important problem is how to raise the productivity of "informal" jobs!

¹Author's calculations.

2. Concepts of labour force participation and underutilisation

There is no ideal labour force concept. Standing (1981), for example, groups the concepts that exist into two main groups. One is "basically behavioural", i.e. what people do with their time, and the other is "basically normative", i.e. work in terms of what people actually get out of it.

The labour force approach is basically behavioural, is the most widespread, and is generally recommended by the International Labour Organisation (ILO). The labour force is equal to the working age population multiplied by the economic activity rate. It is based on the distinction between active and inactive and assumes the working age population is easy to find. Each country that applies this method has a slightly different version, sometimes the working age population is defined as those over 12 years of age, or all those between 15 and 64 etc. (see Hussmanns, 1990) According to the international standards, the "economically active population" comprises all persons of either sex who furnish the supply of labour for the production of goods and services as defined by the United Nations systems of national accounts and balances, during a specified time reference period. According to these systems, the production of goods and services includes all production and processing of primary products, whether for the market for barter or for own consumption.

The international standards, defined at regular meetings of the International Conference of Labour Statisticians (ICLS) at the ILO, use the term "economically active population" as a generic term and identify, in particular, two measures of the economically active population: the

"usually active population" measured in relation to a long reference period such as a year; and the "currently active population" measured in relation to a short reference period such as one week or one day - the latter term is referred to as the "labour force". Thus the measurement of the economically active population involves three basic conditions: the scope of the population

to be covered; the dividing line between economic activities and non-economic activities; and a measurement framework for applying this dividing line to that population.

In practice the economic activity rate is based on the notion of employment which is usually defined as any occupation by which the person who pursues it receives compensation in money or in kind or in which he or she assists in the production of marketable goods and services. To be called economically active a person without work has to have been "available and wanting work" during the specified period and also should have been actively seeking it. Clearly, this approach throws up many problems when it comes to defining an economic activity rate. First,in low income countries, and in particular in rural areas dominated by subsistence agriculture, the concept is meaningless since specialisation of activities has not developed, e.g. domestic work is excluded and so is voluntary work; sitting under a tree deciding what action to take over some local dispute would probably not called work, yet in another country similar deliberations could be the salaried employment of judges and barristers. Second, by a rigorous interpretation of the definition a beggar could be counted as gainfully employed since it is to be hoped that he or she occasionally receives compensation. So that the beggar would not be counted, gainful employment might be defined by some reference to production. But, then suppose the beggar attempts to increase his income by singing to passersby; he would be producing a service of some sorts. In that case it might seem that one could either relate gainful employment to expected demand or to the recognition aspect of employment. If the existence of demand rather than its expectation was taken as a criterion, it would tend to result in the exclusion of many lottery ticket sellers who, by perpetually pestering people, hope to stimulate a demand for their products. Third, the reference period for classifying people as working unemployed or economically inactive is also crucial. It is affected by seasonal variations, illness, holidays, absence from work, etc. Fourth, it is assumed that the aggregate labour supply can be measured by size of labour force. Yet labour supply cannot be measured simply by the number of employed and unemployed, however defined. Labour supply consists of hours, days and months;

effort and intensity of work, commitment to specific jobs and continuity of work. Measurement can be improved by measuring hours worked. However that ignores those who work long hours for meager rewards, e.g. newspaper vendors, shoe shiners etc.

The following approaches have been suggested as a response to the above criticisms of the labour force approach and, following Standing, can be termed normative.

2.1. Subemployment index

The open unemployment rate is an inadequate index of labour underutilisation because it treats all employed and unemployed as supplying an equivalent amount of labour. Many people measured as employed may be working at a lower level of production, or working for shorter periods and less intensively, than they would be able and willing to work. Because of this the Gordon report (United States, 1962) suggested using a "subemployment" index. This was to include the unemployed, discouraged workers, people working part-time who wanted full-time work and family heads who did not earn enough to keep their families out of work. Myrdal (1968) suggested discarding entirely the concepts of "unemployment" and underemployment" as inadequate to reality. Concepts should be based on simple behavioural notions: which people work at all, for what periods during the day, week, month,year, with what intensity and effectiveness, etc.

2.2 Basic needs approach

Elsewhere, the author has suggested that un- and underemployment exist in all families who do not satisfy their basic needs (Hopkins, 1980). Hence, even individuals who appear, according to conventional definitions, to be openly unemployed (e.g. educated workers waiting for jobs, frictional employment, etc.), but belong to families whose basic needs have been satisfied are excluded from the ranks of the un- and underemployed with this definition. A major problem, of course, is what to define as basic needs, what indicators to use and at what level they should be set. This I have discussed also elsewhere (Hopkins, 1983). Given that basic needs can be defined - I have defined them in terms of adequate nutrition, housing, education and health - the method has an advantage in terms of its analytical tractability. This is because a household income that would enable purchase of the physical goods in the basic needs basket can be calculated. Given reliable consumption expenditure information, an estimate of un- and underemployment can be constructed. Policies can then be examined as to how they could satisfy basic needs. Such an approach means concentration on the genuinely underprivileged rather than, perhaps, generating employment in areas where, according to my definition, it is not needed. This brings us into the controversy of whether increasing productive employment opportunities is equivalent to satisfying basic needs. If, under conventional definitions, those who are un- or underemployed have not satisfied their basic needs then the set of policies would be equivalent. If, however, those who are not considered un- or underemployed have also not satisfied their basic needs and if those who are un- or underemployed have satisfied their basic needs , then the two sets of policies are not equivalent. Often poverty and unemployment go hand in hand (for India see Pravin Visaria, 1981).

2.3 Labour efficiency approach

Myrdal (op.cit.) proposed that the level of labour utilisation be expressed as the product of three ratios, viz.

[Working numbers] x [man-hours] x [output] = [output]

) ) ) )

[labour force] [working numbers] [man-hours] [labour force]

(participation rate) (duration) (efficiency)

Underutilisation of the labour force is the non-achievement of those values of the three components of labour utilisation which can reasonably be assumed to be brought about by feasible policy measures during a planning period. Clearly, the measurement here introduces as many problems as the labour force approach because it is impossible to define what is reasonable and feasible.

2.4 Symptomatic approach

The attempt here is to measure labour underutilisation based on a classification of different types of underemployment. The one recommended by the ILO is:

(a) Visible underemployment - involuntarily working part-time or for shorter than usual periods;

(b) invisible underemployment - working time is not abnormally reduced but

unemployment is inadequate because:

(i) the job does not permit full use of a person's highest skills or capacities;

(ii) earnings from employment are abnormally low;

(iii)employed in an establishment or economic unit whose productivity is abnormally low.

(i), (ii), (iii) are disguised underemployment. However, a more rigorous definition of disguised underemployment might lead to the conclusion that most workers in most countries of the world are invisibly underemployed because the definitions are phrased in vague terms such as

"abnormally", "usual periods of work", etc.

2.5 The Hauser approach

This method (Hauser, 1972) is a variant of the symptomatic approach. Hauser suggests that the workforce be divided into two parts: utilised adequately or underutilised. The latter is to be further subdivided into four parts: underutilised by employment, by input, by productivity, by mismatch of occupation and education. All people with less than full-time work are to be classified as underutilised. Further, all those reporting full-time work whose income falls below an income level determined to be a suitable point for policy and programme purposes, are to be classified as underutilised by productivity. Problems arise here because not all those working short weeks want to be, or are capable of, working full-time or full weeks. Second, in terms of mismatch, there is difficulty in defining compatibility. Hauser suggested the mean educational level for each occupation should be the yardstick, but there is no reason to suppose that this would reflect the appropriate amount of education for a specific occupation (e.g. on-the-job skill acquisition). Moreover, it is a mismatch if a worker has an education compatible with his/her occupation but is nevertheless unable to work as much as he/she might want, or is earning less than he/she might reasonably be expected to earn in that occupation.