The 20 Key Indicators of the Labour Market

KILM 1. Labour force participation rate

The labour force participation rate is a measure of the proportion of a country’s working-age population that engages actively in the labour market, either by working or looking for work; it provides an indication of the relative size of the supply of labour available to engage in the production of goods and services. The breakdown of the labour force by sex and age group gives a profile of the distribution of the economically active population within a country.

The KILM 4th Edition introduces three labour force participation tables. Table 1a contains labour force participation rate estimates according to the following standardized age groups: 15+, 15-24, 15-64, 25-54, 25-34, 35-54, 55-64 and 65+. This series covers 191 countries over the years 1980 to 2003. Table 1b has the same country and time-period coverage, but presents rates broken down by five-year age groups and sex, together with the corresponding labour force and total population figures.

The participation rates in tables 1a and 1b are harmonized to account for differences in national data collection and tabulation methodologies as well as for other country-specific factors such as military service requirements. These series include both nationally reported and imputed data and include only estimates that are national, meaning there are no geographic limitations in coverage. Table 1c contains data as reported by the country for 218 countries over the years 1980 to 2004. The data in 1c are presented for the following standardized age groups: 15+, 15-24, 15-64, 25-54, 25-34, 35-54, 55-64 and 65+.

KILM 2. Employment-to-population ratio

The employment-to-population ratio provides information on the ability of an economy to create employment; for many countries the indicator is often more insightful than the unemployment rate. Although a high overall ratio is typically considered as positive, the indicator alone is not sufficient for assessing the level of decent work or the level of a decent work deficit. Additional indicators are required to assess such issues as earnings, hours of work, informal sector employment, underemployment and working conditions. Employment-to-population ratios are of particular interest when broken down by sex, as the ratios for men and women can provide information on gender differences in labour market activity in a given country.

The employment-to-population ratio is defined as the proportion of a country’s working-age population that is employed. A high ratio means that a large proportion of a country’s population is employed, while a low ratio means that a large share of the population is not involved directly in market-related activities, because they are either unemployed or (more likely) out of the labour force altogether.

KILM 3. Status in employment

Indicators of status in employment distinguish between three important and useful categories of the employed – (a) wage and salaried workers, (b) self-employed workers, and (c) contributing family workers – with each being expressed as a proportion of the total employed. Categorization by employment status can help in understanding both the dynamics of the labour market and the level of development of countries. Over the years, and with growth of the country, one would typically expect to see a shift in employment from the agriculture to the industry and services sectors, with a corresponding increase in wage and salaried workers and decreases in self-employed and contributing family workers, previously employed in the agricultural sector.

The method of classifying employment by status is based on the 1993 International Classification by Status in Employment (ICSE), which classifies jobs held by persons at a point in time with respect to the type of explicit or implicit employment contract the person has with other persons or organizations. Such status classifications reflect the degree of economic risk, an element of which is the strength of the attachment between the person and the job, and the type of authority over establishments and other workers that the person has or will have.

KILM 4. Employment by sector

This indicator disaggregates employment into three broad sectors – agriculture, industry and services – and expresses each as a percentage of total employment. The indicator shows employment growth and decline on a broad sectoral scale, while highlighting differences in trends and levels between developed and developing economies. Sectoral employment flows are an important factor in the analysis of productivity trends, because within-sector productivity growth needs to be distinguished from growth resulting from shifts from lower to higher productivity sectors. The addition of further sectoral detail in tables 4b and 4c is useful for demonstrating trends of employment within individual sectors of the economy.

The sectors of economic activity are defined according to the International Standard Industrial Classification of All Economic Activities (ISIC), Revision 2 (1968) and Revision 3 (1990). Appendix C contains both ISIC Revisions 2 and 3.

KILM 5. Part-time workers

There has been rapid growth in part-time work in the past few decades in the developed economies. This trend is related to the increase in the number of women in the labour market, but also to attempts to introduce labour market flexibility in reaction to changing work organization within industry and to the growth of the services sector.

The indicator on part-time workers focuses on individuals whose working hours total less than “full time”, as a proportion of total employment. Because there is no agreed international definition as to the minimum number of hours in a week that constitute full-time work, the dividing line is determined either on a country-by-country basis or through the use of special estimations. Two measures are calculated for this indicator: total part-time employment as a proportion of total employment, sometimes referred to as the “part-time employment rate”; and the percentage of the part-time workforce comprised of women.

KILM 6. Hours of work

The number of hours worked have an impact on the health and well-being of workers as well as on levels of productivity and labour costs of establishments. Measuring the level and trends in the hours worked in a society, for different groups of workers and for workers individually, is therefore important when monitoring working and life conditions as well as when analysing economic developments.

Two measurements related to working time are included in KILM 6 in order to give an overall picture of the time that the employed throughout the world devote to work activities. The first measure relates to the hours an employed person works per week (table 6a). The number of employed are presented according to the following hour bands: less than 20 hours worked per week, less than 34 hours worked per week, between 20 and 29 hours, between 30 and 39 hours, 40 hours and over and 50 hours and over, where available. The second measure is the average annual number of hours worked per person (table 6b).

KILM 7. Employment in the informal economy

Employment in the informal economy relates the estimated number of persons employed in the informal economy to the total number of employed persons. In terms of size and growth, the informal sector is an important part of economic, social and political life in most developing, as well as some developed, economies. In countries with high rates of population growth or urbanization, the informal economy tends to absorb most of the growing labour force. The indicator represents an attempt to capture labour market situations that are inadequately covered by other indicators, such as the unemployment rate (KILM 8) and time-related underemployment (KILM 12).

The 15th ICLS defined the informal sector as units of production within unincorporated enterprises owned by households. Those employed in the informal economy comprise all persons who, during a given reference period, were employed in at least one production unit that meets these informal sector guidelines, irrespective of their status in employment and whether it was their main or a secondary job. The ICLS resolution makes allowances for some national variations. As a result, information for the indicator is often based on national definitions and measurements of the informal economy. However, to the greatest extent possible, data are grouped in the table according to the definitions and methodology used, so as to maximize comparability.

KILM 8. Unemployment

The unemployment rate is probably the best-known labour market measure and certainly one of the most widely quoted by the media in many countries. Together with the employment-to-population ratio (KILM 2), it provides the broadest available indicator of economic activity and status in terms of labour markets for countries that regularly collect information on the labour force. The unemployment rate tells us the proportion of the labour force that does not have a job and is actively looking for work. It should not be misinterpreted as a measurement of economic hardship, however, although a correlation often exists.

The resolution concerning statistics of the economically active population, employment, unemployment and underemployment, adopted by the 13th ICLS, defines the unemployed as all persons above a specified age who, during the reference period, were without work, currently available for work and seeking work. However, it should be recognized that national definitions and coverage of unemployment can vary with regard to factors such as age limits, criteria for seeking work, and treatment of, for example, persons temporarily laid off, discouraged about job prospects or seeking work for the first time.

KILM 9. Youth unemployment

Youth unemployment is an important policy issue for many countries, regardless of the stage of development. For the purpose of this indicator, the term “youth” covers persons aged 15 to 24, while “adults” are defined as persons aged 25 and over. The indicator presents youth unemployment in the following ways: (a) the youth unemployment rate; (b) the youth unemployment rate as a percentage of the adult unemployment rate; (c) the youth share in total unemployment; and (d) youth unemployment as a proportion of the youth population.

The KILM 9 measures should be analysed together; any of the four, when analysed in isolation, could paint a distorted image. For example, a country might have a high ratio of youth-to-adult unemployment but a low youth share in total unemployment. The presentation of youth unemployment as a proportion of the youth population recognizes the fact that a large proportion of young people enter unemployment from outside the labour force. Taken together, the four indicators provide a fairly comprehensive indication of the problems that young people face in finding jobs.

KILM 10. Long-term unemployment

Unemployment tends to have more severe effects the longer it lasts. Short periods of joblessness can normally be dealt with through unemployment compensation, savings and, perhaps, assistance from family members. Unemployment lasting a year or longer, however, can cause substantial financial hardship, especially when unemployment benefits either do not exist or have been exhausted. Long-term unemployment is not generally viewed as an important indicator for developing economies, where the duration of unemployment often tends to be short, due to the lack of unemployment compensation and the fact that most people cannot afford to be without work for long periods. Therefore, most of the information available for this indicator comes from the more developed economies.

The indicator on long-term unemployment makes the basic assumption that unemployment that lasts a full year or more is too long, and is thus a phenomenon worthy of special attention. Two separate measures of long-term unemployment are included: (a) those unemployed one year or more as a percentage of the labour force; and (b) those unemployed one year or more as a percentage of the total unemployed (the incidence of long-term unemployment).

KILM 11. Unemployment by educational attainment

This indicator can provide important insights into the relationship between the educational attainment of workers and unemployment in different countries. This allows researchers to discern a key characteristic of a country’s or region’s unemployed labour force and, in so doing, assists in identifying the likelihood of different groups of workers experiencing unemployment. The information in the indicator may also be used to draw inferences relating to changes in employment demand. By focusing on the education characteristics of the unemployed, the KILM 11 indicator can aid in analyses designed to shed light on how significant long-term events in the country, such as ongoing skills-based technological change, increased trade openness or shifts in the sectoral structure of the economy, alter the experience of high- and low-skilled workers in the labour market.

Information for this indicator is classified according to categories of schooling – less than one year, less than primary level, primary level, secondary level and tertiary level – and is presented as the proportion of total unemployed in each of these five categories. The categories used in the indicator are conceptually based on the levels of the International Standard Classification of Education (ISCED), contained in Appendix D. ISCED was designed by UNESCO to serve as an instrument for assembling, compiling and presenting comparable indicators and statistics of education, both within countries and internationally.

KILM 12. Time-related underemployment

Underemployment reflects underutilization of the productive capacity of the labour force. Time-related underemployment, as the only component of underemployment, to date, that has been agreed on and properly defined within the international community of labour statisticians, is, therefore, the best available proxy of the underutilized labour force. The indicator is important for improving the description of employment-related problems, as well as assessing the extent to which available human resources are being utilized in the production process of the country. It also provides useful insights for the design and evaluation of employment, income and social programmes. The indicator includes two measures – time-related underemployment as a percentage of the labour force, and as a percentage of total employment.

The international definition of time-related underemployment was adopted in 1982 by the 13th ICLS and amended in 1998 by the 16th ICLS. It includes all persons in employment whose hours of work “are insufficient in relation to an alternative employment situation in which the person is willing and available to engage”.

KILM 13. Inactivity rate

The inactivity rate is defined as the percentage of the population that is neither working nor seeking work (that is, not in the labour force). The inactivity rate of the age groups 15+, 15-24, 15-64, 25-54, 25-34, 35-54, 55-64 and 65+ are shown in table 13. The 25-54 age group can be of particular interest since it is considered to be the “prime-age” group, in which individuals are generally expected to be in the labour force; it is worthwhile investigating why these potential labour force participants are inactive, since they have normally completed their education but have not yet reached retirement age. The inactivity rates, when added to the labour force participation rate (KILM table 1a) for the corresponding group, will equal 100 per cent.

KILM 14. Educational attainment and illiteracy

An increasingly important aspect of labour market performance and national competitiveness is the skill level of the workforce. Information on levels of educational attainment is currently the best available indicator of labour force skill levels. These are important determinants of a country’s capacity to compete successfully in world markets and to make efficient use of rapid technological advances; they are also among the factors determining the employability of workers.

The KILM 14 indicator reflects the levels and distribution of the knowledge- and skills-base of the labour force and population. It includes two measures pertaining to educational levels, and a third measuring illiteracy in the adult population. The indicators cover the educational attainment of both women and men in the entire labour force. As with the indicator for unemployment by educational attainment (KILM 11), KILM 14 presents information in accordance with the ISCED (see Appendix D).

KILM 15. Manufacturing wage indices

Wages are a widely used measure of the general level of workers’ income. Such information is often applied to formulate, implement and monitor economic policies and, more specifically, to address labour issues such as human resource planning, labour utilization, wage fixing, social security and labour costs. This indicator covers real wages in manufacturing (despite the fact that paid employment in manufacturing activities is not uniformly important across regions and over time, for reasons explained in detail within KILM 15).

Real wages in an economic activity are viewed as a major indicator of employees’ purchasing power and as a proxy for their level of income, independent of the actual work performed in that activity. Significant differences in the purchasing power of wages, over time and between countries, reflect modern economic society, and comparisons of the movement of real wages can provide a measure of the material progress (or regression) of the working population.

KILM 16. Occupational wage and earning indices

While KILM 15 shows trends in average wages at the industry level (i.e. in manufacturing), KILM 16 looks at trends in, and differentials between, occupational wages (i.e. wage rates or earnings) in specific industry groups. Changes in average wages within an industry or sector may be due not only to changes in levels of wage rates or earnings but also to changes in the occupational composition of employment and in the proportion of men and women employed. Looking at wages of particular occupations avoids some of the limitations associated with using broad averages, where changes in the composition and structure of the workforce might be influencing the recorded changes in average wages.

Two tables of wage indices are presented for this indicator: one relating to nominal and real wage rates, and the other to nominal and real earnings. Nineteen occupations were selected to give a representative picture of the development of real wage rates and earnings for different types of occupations with varying skill levels in different sectors of activity.

KILM 17. Hourly compensation costs

Hourly compensation costs are only one factor in international competitiveness and, when used alone, can be misleading. However, in conjunction with other indicators, including labour productivity and unit labour costs (KILM 18), relative changes can be helpful in assessing trends in competitiveness. In addition, non-wage labour costs have become an important issue in debates on labour market flexibility.

For the purposes of this indicator, hourly compensation costs of manufacturing production workers are expressed in US dollars at market exchange rates; comparisons in index terms show the position of countries in relation to the United States (United States = 100). The indicator also shows non-wage labour costs as a percentage of total compensation costs – the sum of gross earnings and the employers’ contributions to legally required insurance programmes, contractual and private benefit schemes (plans), and labour taxes – as well as the annual percentage change in total compensation costs over the period 1980-2003.

KILM 18. Labour productivity and unit labour costs

Productivity and unit labour costs, in combination with hourly compensation costs, can be used to assess the international competitiveness of a labour market. Economic growth in a country or sector can be ascribed either to increased employment or to more effective work by those who are employed. The latter can be described through data on labour productivity. Labour productivity, therefore, is a key measure of economic performance. An understanding of the driving forces behind it, in particular the accumulation of machinery and equipment, improvements in organization as well as physical and institutional infrastructures, improved health and skills of workers (“human capital”) and the generation of new technology, is important in formulating policies to support economic growth.

Labour productivity is defined as output per unit of labour input, and unit labour cost is the labour cost per unit of output. Information is presented for the total economy and the manufacturing sector as well as two service sectors, transport and communication, and wholesale and retail trade. In addition, this edition of the KILM provides estimates of productivity in the agriculture, forestry and fisheries sector.

KILM 19. Employment elasticities

Employment elasticities provide a numerical measure of how employment growth varies with growth in economic output – i.e. how much employment growth is associated with 1 percentage point of economic growth. Employment elasticities can serve as a useful way to examine how growth in economic output and growth in employment evolve together over time. They can also provide insights into how employment generation varies for different population subsets in an economy and assist in detecting and analysing structural changes in employment over time. Taken together with other indicators such as economic growth rates, labour force growth, poverty, hours of work and wages, employment elasticities can provide important insights into labour market trends.

Two tables of employment elasticities are provided for this indicator. Table 19a gives the percentage point change in employment, by sex, associated with a 1 percentage point increase in total economic growth over three time periods: 1991 to 1995, 1995 to 1999 and 1999 to 2003. The second table provides sector employment elasticities, which indicate the percentage point change in employment within a given sector (agriculture, industry or services) associated with a 1 percentage point change in value added in the sector.

KILM 20. Poverty, working poverty and income distribution

Poverty can result when individuals are unable to generate sufficient income from their labour to maintain a minimum standard of living. The extent of poverty, therefore, can be viewed as an outcome of the functioning of labour markets. Because labour is often the most significant, if not the only, asset of individuals in poverty, the most effective way to improve the level of welfare is to increase employment opportunities and labour productivity though education and training.

An estimate of the number of people in poverty in a country depends on the choice of the poverty threshold. However, what constitutes such a threshold of minimum basic needs is subjective, varying with culture and national priorities. Definitional variations create difficulties when it comes to making international comparisons. Therefore, in addition to national poverty measurements, this indicator presents data relative to the World Bank international poverty lines of US$1 and US$2 per person per day. The poverty gap is included as an overall measure of the depth of poverty. The Gini index is also given, as it is a convenient summary measure of the degree of inequality based on either income or expenditure. Estimates of the “working poor” – defined as the proportion of employed persons living in a household whose members are estimated to be below the poverty line – are also available for the first time in the KILM 4th Edition.