Unemployment, & other forms of labor

under-utilization
Session Two
Duncan Campbell and Per Ronnas
We begin with two principles

2
 First, employment policy should address in
particular those in the working age population
(1) who have a wish and ability to work, (2)
that is currently unfulfilled

the unemployed are just one such group

3
Second, a fundamental distinction among
working age people is those who have an
attachment to the labor market, even
unfulfilled, and those who do not

4
 What is labor under-utilization?

SDG 8: Full and productive employment and decent work for all
(who would be able to and who wish to work)

Labor under-utilization can be seen as the shortfall from reaching this

goal in terms of availability of employment and income from
employment.

5
 Under-utilization of labor can take several forms

Under-utilization of those in the labor force:

• Unemployment
• Time-related underemployment
• Working poor

In addition those who would like to work but how are not actively
searching for work (discouraged) and those seeking work, but not
immediately available for work are also included in a broader concept
of unemployment and are classified as potential labour force
6
 Working age population (15-64)
In labor force Not in labor force

Wanting to work
Inactive
Employed Unemployed

seeking work, not seeking work

but unavailable but available

«Potential labor force»

7
The most obvious form of under-utilization is
unemployment …

… but, as we’ll see, unemployment is just the

tip of the iceberg

8
 Unemployment:
cyclical, frictional, and structural
• When we speak of «unemployment», we are most often implicitly referring to the
cyclical unemployment rate – i.e. what happens to unemployment over the business
cyclical

• The business cycle refers to downward and upward fluctuations in economic activity in
which economic activity starts to decline, often resulting in a recession, before business
and consumer confidence pick up again and the economic begins to grow again – a
recovery

• How do downturns happen? we can think of it as a «shock» and «vulnerability» to that

shock – e.g. imprudent lending in the US housing market in 2008, an oil price shock in
2014, or a mandatory suppression of aggregate demand in 2020 (the pandemic)

• Of course, there are many other shocks … such as the onset of a global pandemic.

9
 Labor is a lagging variable over the business
cycle; so is cyclical unemployment
• Employers try to hold on to their employees as long as possible in a
downturn, (they can be costly to rehire)

• In consequence, the initial response to a downturn is a decline in

productivity

• Conversely, in an upturn, employers are slow to rehire until they are

convinced that the upturn is sustainable

• In consequence, in an upturn, productivity increases faster than

employment
10
11
 Good in theory, harder to discern
in fact
• The thinking is that as unemployment falls, the labor market tightens up, and
workers push for higher wages, creating inflationary pressures

• Interest rates are then raised to staunch inflation, and economic activity cools off

• The problem with this excellent theory is that low unemployment and low
inflation can and have coexisted. So have high unemployment and high inflation

• It is therefore been difficult to find just what is the Non Inflation Accelerating
Rate of Unemployment – or NAIRU – because it varies over time and over
countries

12
 «frictional» unemployment

• Frictional unemployment is unemployment of relatively short

duration

• In any market economy, people search for jobs, whether for the first
time, or after having left a previous job.

• This «job search» unemployment, or «between jobs» unemployment

is called frictional unemployment

13
 Structural Unemployment
Structural unemployment is of two types (both are instances of a mismatch
between labor supply and demand)

• The first is skills mismatch. This often occurs with rapid economic expansion
combined with technological change – the skills now demanded on the labor
market are not those that the labor supply has

• The second is geographical – job growth is strong in one part of the country,
but most people live elsewhere. Labor migration is often the solution

• The long-term unemployment rate is often a proxy for structural

unemployment

14
Countries in Southern Caucasus have high unemployment, in
particular among youth
Armenia unemployment rates 2019, % Georgia unemployment rates, 2019, %
45 40

40 39.9 35
33.4
36.5
35 34.7 31
30 29.6
33
31.8
30 27.1 26.9
29.6
25 24.5
25 22.6
24.1 20.8
23 20
21.2 20.5
20 19.8 18 18.1 17.7
18.3 19 16.4 16.6
18 17.9 18 17.3
17 15 15.1 15.3 15.1
15 15.8 15.2
15.1 13.5
14.3 14.8
14.7
14.5 14.9 14.6 12.8
14 13.7 12.5
11.9 11.9
12.7 11.7 11.4 11
10 9.7
9.5 9.6
10 9.3
7.4
5 5.4
5

0 0
15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64

Men Women Total Men Women Total

15
In Central Asia unemployment rates are lower, but still high
among youth
Kyrgyzstan unemployment rates 2018, % Tajikistan unemployment rates, 2016, %
16 16
14.7
14 13.7 14

12.2 12.4 12.5

12 12

10 10.2 10 10.2
9.9
9.4 9.3 9.4 9.3

8 8.3
7.8 8 7.8
7.2 7.4
6.6 6.8 6.6
6.2 6.4 6.5
6 6
5.3 5.3 5.5
5.1 4.9 5 4.9
4.4 4.5 4.3
4 4 4 4.2 4.2
3.9
4.2
3.4 3.6
3.5 3.4 3.5
3.3
3.2 3.2
2.7 2.7 2.8
2.5 2.5
2 2.1 2.2
1.9 1.9 2
1.4

0 0 0.2
15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64

Men Women Total Men Women Total

16
 Beyond unemployment …

labor under-utilization is a broader concept

17
Under-utilization of labour goes beyond the labour force and
affects those outside the labour force as well
• Labour migrants, who have been forced to seek employment abroad due to
lack of sufficiently attractive job opportunities at home.
• Those working but not considered to be in employment; mainly those
working in subsistence agriculture. Which reflects a failure to create
condusive conditions for a market-oriented agriculture and earnings for farmers.
• Women who would like to have a job, but who are too time
constrained due to excessively heavy and unequally shared household
and care work.
• Victims of labour market discrimination and/or cultural barriers that
prevents them from taking up employment outside the house.
18
 Causes of under-utilization of labor
• An absolute lack of productive jobs. The economy is too small and/or not
sufficiently employment-rich; slow or jobless economic growth.
• Inadequate education and employable skills
• Skills mismatches
• Geographic mismatches between where jobs are needed and where they
can be found.
• Poorly functioning labor markets
• Discrimination on the labour market. Cultural or other barriers preventing
women or other groups from taking up certain occupations or jobs.
• Time-consuming and unequally shared household and care work
• Etc.

19
 Why should we care?
• Because it results in lower human welfare.
• Because under-utilization of labor is a waste of precious human
resources and reduces the scope for inclusive and sustainable
economic development.
• Because it is an indication of problems in the labor market and in the
economy which policies can address,

• And … under-utilization of labour can be counted, so we know how

big the problem is or is not

20
Labour underutilization is not just the unemployed, but also
others who would like to have employment
LU3 Unemployed and potential employed, %
35.0

30.0

25.0
10.7

20.0

15.0
18.0 5.0

10.0 5.4 1.2

18.3

11.6 1.5
5.0 0.5
9.0
6.9
4.9 4.9 4.5
0.0
ARM AZE est. GEO KAZ KYR TAJ UZB est.

LU1 Unemployed LU3 Potential employed

21
The transition from education to employment is often long and
difficult for youth.

Youth (aged 15-24) neither in education nor in employment (NEET) %

60.0
53.1

50.0

40.0

29.1 29.4 30.0

28.4 28.1 28.7
30.0
26.0
23.3
20.5
20.0

12.0
10.0
5.8

0.0
ARM GEO KYR TAJ

Total Men Women

22
And there are those working, but not long
enough –

these are the «time-related unemployed»

23
Unemployed and employed working too few hours and who
would like to work full time.
LU2 Unemployed and time-related under-employed, %
30.0

25.0

7.1
20.0

15.0 11.6
19.3
4.6

10.0
18.3
2.1 1.7

11.6 3.3
5.0
9.0
6.5 6.9
4.9 4.5

0.0
ARM AZE GEO KAZ, 2012 KYR TAJ UZB est.

Unemployed Under-employed

24
 The ILO’s composite measure of labor force
underutilization
• In ILO statistics, labor utilization (LU) is comprised of

• LU 1 – the unemployment rate, plus

• LU 2 – the time-related underemployment rate, plus
• LU 3 – the potential labor force rate

• This gives a variable, LU 4, of labor force under-utilization

25
LU4 Labour force under-utilisation rate, %
LU4 Labour force underutilisation rate, %
45.0

40.0

35.0
18.0
30.0 10.7

25.0
7.1 1.2
20.0
5.0

15.0 19.3 11.6

4.6
5.4
10.0 18.3 0.5 1.5
2.1 1.7
11.6 3.3
5.0 9.0
6.5 6.9
4.9 4.5
0.0
ARM AZE est. GEO KAZ, 2012 KYR TAJ UZB est.

Unemployed Under-employed Potential employed

26
There are also those who are working, but who are
not earning enough to lift themselves and their
dependent families out of poverty – the «working
poor»

Some might be time-related under-employed, but

others work long hours … but still do not earn
enough

27
 Poverty has fallen from high level as income from employment
has increased. Remittances have also played an important role
in some countries
% living in extreme poverty, under 1.90 USD PPP/day % living in poverty, under 3.20 USD PPP/day
60 90
85
80
50 50.7
70 68.6

40 60

50
31.4 47.4
46.4
30
40

20 19 30 29.8 30.6

14.4 22.5
12
20 19
16.7 17.8
10 9 14.1 14.9
10 9.9
9.7
4 4.1
3.8
2.5 2.8
0 1
0.1
0 1.1
0.6
0 1.5
0 0 0.2
0
2000 2010 2019 2000 2010 2019

Armenia Azerbaijan Georgia Armenia Azerbaijan Georgia

Kazakhstan Kyrgyzstan Tajikistan Kazakhstan Kyrgyzstan Tajikistan

28
 Less than two thirds of the working age population are
employed
Participation in the labour force, both sexes
100%

90%
25.1
29.9 31.6
33.5
80% 40.3 37.1
41.2

70% 57.6 6.8

3.4 4.9
3.3
60% 7.0
2.7
10.9
50%

40% 2.9

66.7 68.1 68.4

30% 63.2
55.9 56.1
48.8
20% 39.5

10%

0%
Armenia Azerbaijan Georgia Kazakhstan Kyrgyzstan Tajikistan Uzbekistan EU

Employed Unemployed Inactive

29
 There are far fewer women than men in the labour force
in most of the countries
Male participation in the labour force Female participation in the labour force
100% 100%

90% 18.5 90%

28.6 27.4 25.8 26.3
30.3 32.4
80% 4.9 80% 36.7 37.7
47.1 45.5
3.1 4.4 50.6
70% 2.8 55.9
9.3 70%
12.4
60% 67.4
3.6 8.7 4.9
60%
50% 4.2
50% 5.5
40% 76.6
71.1 9.5 2.2
66.9 73.7
30% 63.3 40%
59
48.7 1.7
20% 30% 59.7 58.9 62.3
49
10% 20% 39.9 41.9
30.9
0% 10%
Armenia Azerbaijan Georgia Kyrgyzstan Tajikistan Uzbekistan EU
0%
Armenia Azerbaijan Georgia Kyrgyzstan Tajikistan Uzbekistan EU
Employed Unemployed Inactive Employed Unemployed Inactive

30
Under-utilisation of human resources takes different
expressions between countries …
(Under-utilisation of the working age population, %

17.4
26.4

15.8

6.6 19
3.3
1.8
10.9
10.4

2.9

46.0
39.5

ARMENIA TAJIKISTAN

Employed Unemployed Working abroad Discouraged Working but not employed Other inactive

31
… and between men and women
(Under)utilisation of working age population in the economy, Tajikistan

12.6

26.4

12.0 39.2

2.0

19.0 20.6

1.8
4.2
10.4 25.6

2.9

1.6
1.0
1.8

48.7
39.5
30.9

TOTAL MEN WOMEN

Employed in TAJ Unemployed Working abroad Discouraged Working but not employed Other inactive

32
 Some tentative conclusions
• Increases in wages, but also remittances, have reduced poverty.
• Rapid growth of labour productivity made wage increases possible, but at
the expense of job creation.
• Still, the human resources remain severely under-utilised. This takes the
form of open un-employment and low levels of utilisation of the labour
forces, as well as in high inactivity rates.
• There is now a need to shift the structure of economic development from
being productivity-based to becoming employment-based.
• Women lack full and productive employment to a far greater extent to
men. Achieving equal access to productive employment for women and
men is a key challenge

33
Thank you for your attention
In a late session we will focus on the economy and employment where
we ask ourselves how to increase the capacity of the economy to create
productive employment