Employment Policy in Latin Employment Policy in Latin America: The Missing Link America: The Missing Link between Economic Growth, between Economic Growth,

Poverty and Income Poverty and Income DistributionDistribution

Class 1Class 1Kirsten SehnbruchKirsten Sehnbruch

Center for Latin American StudiesCenter for Latin American StudiesUC BerkeleyUC Berkeley

Feb 18 – March 11, Fridays, 10.00am – 1.00pmFeb 18 – March 11, Fridays, 10.00am – 1.00pm

Purposes of the CoursePurposes of the CourseThe objective of this course is to get you to think about labour market issues The objective of this course is to get you to think about labour market issues and how they are linked to Latin America’s biggest problems: poverty and and how they are linked to Latin America’s biggest problems: poverty and income distribution. income distribution. who the employed are, what sort of jobs they have, what sort of jobs they who the employed are, what sort of jobs they have, what sort of jobs they don’t havedon’t havehow this relates to poverty and income distribution, and to Latin America’s how this relates to poverty and income distribution, and to Latin America’s development process in generaldevelopment process in generalhow data on the labour market is produced and used by analystshow data on the labour market is produced and used by analystswhat the principal debates are regarding labour market policy, and where what the principal debates are regarding labour market policy, and where the different political positions come from the different political positions come from how labour policy is linked to economic and social policy how labour policy is linked to economic and social policy how to work with research on the labour market (and possibly produce your how to work with research on the labour market (and possibly produce your own research on the subject)own research on the subject)what governments can do to enhance their development process through what governments can do to enhance their development process through labour policy labour policy how the labour market is relevant for your particular field of study (and trust how the labour market is relevant for your particular field of study (and trust me, it is)me, it is)

Outline of ClassesOutline of Classes

Class 1: Introduction, definitions, Class 1: Introduction, definitions, measurements and data generationmeasurements and data generation

Class 2: Social actors and labour market Class 2: Social actors and labour market legislationlegislation

Class 3: Labour policy and associated Class 3: Labour policy and associated social policysocial policy

Class 4: Discussion of the main debates Class 4: Discussion of the main debates on labour market issueson labour market issues

The Trickle-down EffectThe Trickle-down Effect

Economic Economic PolicyPolicy

Social Social PolicyPolicy

Trickle Trickle down down through jobsthrough jobs

Trickle Trickle down down through jobsthrough jobs

Individual Individual WellbeingWellbeing

Definition of EmploymentDefinition of Employment

The ILO defines everybody who spent at The ILO defines everybody who spent at least one hour working during the week in least one hour working during the week in question as employed.question as employed.

This hour’s work does not necessarily This hour’s work does not necessarily have to have been remunerated in order to have to have been remunerated in order to be considered employment.be considered employment.

The definition excludes criminal activities.The definition excludes criminal activities.

Definition of unemploymentDefinition of unemployment

The ILO considers somebody to be The ILO considers somebody to be unemployed if he or she did not hold any unemployed if he or she did not hold any remunerated employment during the remunerated employment during the period of reference (not even one hour per period of reference (not even one hour per week), and is actively looking for week), and is actively looking for employment.employment.

Definition of InactivityDefinition of Inactivity

The inactive are not engaged in any form The inactive are not engaged in any form of productive work, and they are not of productive work, and they are not looking for work.looking for work.

What’s the ILO?What’s the ILO?

International Labour OrganisationInternational Labour Organisation

UN branch that deals with employment UN branch that deals with employment issuesissues

Based in Geneva, with regional offices all Based in Geneva, with regional offices all over the worldover the world

Labour ConventionsLabour Conventions

Definitions and Data gatheringDefinitions and Data gathering

Labor Market VariablesLabor Market Variables

Employed + Employed + Unemployed Unemployed

= Labor Force= Labor Force

Labor Force + Labor Force + Inactive Inactive

= Population= Population

Participation rate:Participation rate:(Economically Active Population, EAP)(Economically Active Population, EAP)

Labor Force/PopulationLabor Force/Population

==

Employment rate: Employment rate:

Employed/ PopulationEmployed/ Population

++

Unemployment rate:Unemployment rate:

Unemployed/Labor ForceUnemployed/Labor Force

Who are the Unemployed?Who are the Unemployed? Ex: employment survey, Santiago, 1999Ex: employment survey, Santiago, 1999

EmployedEmployed Unemployed Unemployed RatioRatio

Head of Head of HouseholdHousehold

38.638.6 25.725.7 9.79.7

OtherOther 61.461.4 74.374.3 16.316.3

TotalTotal 100.0100.0 100.0100.0 13.913.9

Growth, Participation and Growth, Participation and UnemploymentUnemployment

Why is the Why is the participation rate participation rate important?important?

What influences the What influences the participation rate?participation rate?

Why is the Why is the unemployment rate unemployment rate important?important?

What influences the What influences the unemployment rate?unemployment rate?

• How do the participation and unemployment rates relate to each other?

Types of EmploymentTypes of Employment

Paula works in a department store. She has an Paula works in a department store. She has an employment contract, and her employer pays her social employment contract, and her employer pays her social security.security.Leon works at a construction site as a day laborer.Leon works at a construction site as a day laborer.Alejandro has a fruit stall in the market.Alejandro has a fruit stall in the market.Maria helps her father look after his shop after she gets Maria helps her father look after his shop after she gets home from school. He does not pay her for her help.home from school. He does not pay her for her help.During the autumn harvest, Antonio picks grapes for a During the autumn harvest, Antonio picks grapes for a large multinational fruit company.large multinational fruit company.Andrea owns a bakery. She employs 3 women to help Andrea owns a bakery. She employs 3 women to help her in the shop.her in the shop.Susana is a maid. She works 3 days a week in different Susana is a maid. She works 3 days a week in different households.households.

Types of EmploymentTypes of Employment

Wage-earners or Salaried workers: Blue Collar or Wage-earners or Salaried workers: Blue Collar or White CollarWhite Collar

EmployersEmployers

Self-employed (Cuenta Propia) : Professional or Self-employed (Cuenta Propia) : Professional or Non-Professional (ie. with or without higher edu.)Non-Professional (ie. with or without higher edu.)

Domestic Service workers Domestic Service workers

Non-remunerated family membersNon-remunerated family members

Types of ContractTypes of Contract

Open-ended (Contrato Indefinido)Open-ended (Contrato Indefinido)

Short-term (a plazo fijo / temporario)Short-term (a plazo fijo / temporario)

Project based (por tarea o servicio)Project based (por tarea o servicio)

Fee based (honorarios)Fee based (honorarios)

No formal written contractNo formal written contract

Employment Surveys (1)Employment Surveys (1)

1. Household surveys1. Household surveysMain advantage: captures the entire labour Main advantage: captures the entire labour force, including the unemployed and inactive force, including the unemployed and inactive (potential labour force)(potential labour force)Disadvantage: generally answered by the first Disadvantage: generally answered by the first “responsible adult” that the interviewer can get “responsible adult” that the interviewer can get hold ofhold ofWorkers have to be interviewed in Workers have to be interviewed in circumstances where they are free to express circumstances where they are free to express themselvesthemselves

Employment Surveys (2)Employment Surveys (2)

2. Workplace surveys2. Workplace surveysMain advantage: can interview workers directlyMain advantage: can interview workers directlyDisadvantage: they have to be interviewed in Disadvantage: they have to be interviewed in circumstances in which they are free to express circumstances in which they are free to express themselvesthemselvesUseful as a study of the formal sector (eg. Union Useful as a study of the formal sector (eg. Union activity, accidents and safety at work, application activity, accidents and safety at work, application of labour market legislation)of labour market legislation)In Latin America: never an appropriate In Latin America: never an appropriate assessment of the labour market assessment of the labour market

Employment Surveys (3)Employment Surveys (3)

Obtaining Longitudinal Data:Obtaining Longitudinal Data:

Repeating the same survey (quarterly, Repeating the same survey (quarterly, annual, biannual)annual, biannual)

Panel Surveys (finding the same people Panel Surveys (finding the same people repeatedly)repeatedly)

Asking for historical information (relying on Asking for historical information (relying on people’s memory)people’s memory)

Employment Surveys (4)Employment Surveys (4)

The design and methodology of a survey The design and methodology of a survey are fundamental to its usefulness as a are fundamental to its usefulness as a policy making tool.policy making tool.Badly designed surveys can lead to bad or Badly designed surveys can lead to bad or non-existent policynon-existent policyExample: Encuesta Laboral in ChileExample: Encuesta Laboral in Chile– interviewed workers in companiesinterviewed workers in companies– sent labour inspectors to do the sent labour inspectors to do the

interviewing!!!interviewing!!!

The Informal SectorThe Informal Sector

The ILO defines the informal sector as the The ILO defines the informal sector as the proportion of the workforce classified as:proportion of the workforce classified as:

- unremunerated family membersunremunerated family members- non-professional self-employednon-professional self-employed- domestic service or domestic service or - workers of companies that have fewer workers of companies that have fewer

than 5 (formerly 10) employees.than 5 (formerly 10) employees.

UnderemploymentUnderemployment

Defining and measuring underemployment:Defining and measuring underemployment:

People who work and do not earn enough People who work and do not earn enough in order to make a livingin order to make a living

People who work few hours and would like People who work few hours and would like to work moreto work more

Both of the aboveBoth of the above

Definition of PovertyDefinition of Poverty

World Bank:World Bank:Poverty: < 2 USD/dayPoverty: < 2 USD/dayExtreme Poverty: < 1 USD/dayExtreme Poverty: < 1 USD/day

Latin American governments/CEPAL:Latin American governments/CEPAL:Poverty: < 2 canasta bPoverty: < 2 canasta báásica/monthsica/monthExtreme Poverty: < 1 canasta bExtreme Poverty: < 1 canasta báásica/monthsica/month

Industrialised Countries:Industrialised Countries:Poverty: less than half average wagePoverty: less than half average wage

Income DistributionIncome Distribution

Gini coefficientsGini coefficients

Percentiles, deciles Percentiles, deciles or quintilesor quintiles

Ratios: eg. Top Ratios: eg. Top 10% of income to 10% of income to bottom 10% of bottom 10% of incomeincome

Q 1Q 1 2%2%

Q 2Q 2 8%8%

Q 3Q 3 15%15%

Q 4Q 4 25%25%

Q 5Q 5 50%50%

Poverty and Economic GrowthPoverty and Economic Growth

Economic growth is a prerequisite for reducing povertyEconomic growth is a prerequisite for reducing povertyBut, economic is not enough to reduce poverty in But, economic is not enough to reduce poverty in countries with severe income inequality countries with severe income inequality Public transfers can have a greater impact than Public transfers can have a greater impact than economic growth: over this period in Chile transfers economic growth: over this period in Chile transfers increased very little, whereas in Brazil and Panama they increased very little, whereas in Brazil and Panama they increased significantly increased significantly

1991-19971991-1997 BrazilBrazil Chile Chile PanamaPanama

Reduction of Reduction of PovertyPoverty

-11%-11% -15%-15% -12%-12%

Annual per cap Annual per cap income growthincome growth

+0.95%+0.95% +5.36%+5.36% +2.40%+2.40%