The standard practice in the measurement of employment

8 Figure 1. Levels: Employment rate vs. lagged labour force participation rate – Core developing countries last available year Employment as it is standardly measured is a function population dynamics in developing countries Note: The regression equation is: y = 0.2592x + 73.501 with R² = 0.1328, N = 91. The coefficient is statistically significant at the 1 level. Source: The data is ILO data taken from World Bank’s World Development Indicators http:data.worldbank.orgdata-catalogworld-development-indicators Download Date: 04042012. LABORSTA, ILO. 9 Figure 2. Levels: Employment rate vs. lagged labour force participation rate – Advanced economies last available year In contrast to developing countries employment in advanced economies as it is standardly measured is not a function of population dynamics Note: The regression equation is: y = 0.1332x + 84.141 with R² = 0.0716, N = 23. The coefficient is not statistically significant. Source: World Bank World Development Indicators http:data.worldbank.orgdata-catalogworld- development-indicators . LABORSTA, ILO. The increase in the employment rate, in an environment without social welfare, is therefore driven more by the dynamics of participation of labour in the economy than it is by the development of the economy itself. This is why the employment rate tends to follow labour force participation rates in developing countries Figure 1. The labour force participation rate is of course simply the percentage of working-age persons in an economy who are in the labour force. It is also the case because of absence of the same reasons that this relationship does not obtain in advanced economies Figure 2.

2.3. The employment rate in relation to long-run economic development and shorter run economic

growth Since GDP per capita is the employment to population ratio times the productivity of employment ie. GDP per employed one would expect lower productivity of employment at lower income levels. However we should also have some expectation that the share of employed in the labour force what we call the employment rate to increase and the share of unemployed in the labour force to decline in the longer run. That is if the measure of employment and unemployment were infact measures that captured what they were meant to from any perspective income or contractual in a developing country. When we examine the employment rate across developing countries with different per capita incomes, the basic question that we are asking is whether a higher per capita income of a country is associated with a higher employment rate? This is a very simple way to test if a relationship obtains with respect to long term economic development. The expectation is that if there is no fundamental problem with the employment measure, and it is a variable that does capture something that is both welfare and productivity increasing, we should get a positive relationship. We would not, in general, expect these bivariate relationships to be strong, as variations on other factors across developing countries obtain, but there is an expectation that over time with development and growth the employment rate would increase. That is of course if it were measured properly.