Unemployment & Labour Market - Economic Society of · PDF file1 Unemployment & Labour Market Shandre Mugan Thangavelu Singapore Centre for Applied and Policy Economics Department of

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Unemployment & Labour Market

Shandre Mugan ThangaveluSingapore Centre for Applied and Policy Economics

Department of EconomicsNational University of Singapore

§ Definitions and Concepts

§ Employment Trends

§ Challenges

§ Responses

Scope of Presentation

2

§ Costs of unemployment:

q Lost production – people who don’t work can’t produce! Okun’s law (based on empirical observations) states that 1 extra %-point of unemployment costs about 2% of GDP.

q Undesirable effects on distribution of income – costs of unemployment borne unevenly; the cost of a recession is borne disproportionately by those who lose their jobs.

Why should we be concerned about unemployment?

n 3 types of unemployment:

q Frictional Unemployment - This exists as a result of individuals shifting between jobs and looking for new jobs

q Cyclical Unemployment - This is unemployment in excess of frictional unemployment, and occurs when output is below the full employment level (e.g., in recession)

q Structural Unemployment - This type of unemployment is identified with mismatch, i.e., situation where characteristics of the unemployed, particularly in terms of skill, work experience or location, differ from those of jobs that are available

What types of unemployment should we be concerned about?

3

Stock of Unemployed

Persons

Persons made redundant by

firms

Persons quitting jobs to search for

new ones

New Entrants or Re-entrants

Hired into jobs

Discouraged unemployed stop looking

for jobs (leave labour force)

Inflow OutflowUnemployment Flows

Stock of Unemployed

Persons

Persons made

redundant by firms

Persons quitting jobs to search for

new ones

New Entrants or Re-entrants Hired into

jobs

Discouraged unemployed

Inflow

§ Size of new cohort entering job market

§ Economic situation (e.g., business cycles, economic re-structuring)

Factors Affecting Unemployment Flows

Outflow

§ Search intensity (supply-side)

§ Level of job vacancies (demand-side)

§Worker’s characteristics match job requirements?

• Labour market flexibility (e.g., wage flexibility, flexibility to hire / fire, etc which are affected by Employment laws and regulations)

4

What are some of the labour market indicators we should look at?

Population

Economically Active

= Labour Force

Economically Inactive

Employed = Workforce

Unemployed but actively seeking

work

Some Key Indicators

n Labour Force Participation Rates (by Age and Sex)

n Total Employment and Employment Change

n Retrenchmentsn Unemployment Raten Long-Term

Unemployment Rate (by Age & Education)

Employment Trends

5

Employment Recovering Lost Ground

Source: Manpower Research and Statistics Dept, MOM

Source: Manpower Research and Statistics Department, MOM

-30

-20

-10

0

10

20

30

40

50

Num

ber (

'000

)

Emp Change (' 000) 3.3 -12.5 -14.1 -10.3 -3.8 -8.5 -0.3 -4.1 -26 0.9 16.2 13.7 10.9 14.1 32.7 17.8 31.7 28.5 35.3 45.0

Q201 Q301 Q401 Q102 Q202 Q302 Q402 Q103 Q203 Q303 Q403 Q104 Q204 Q304 Q404 Q105 Q205 Q305 Q405 Q106

Employment Growth Highest In Services

Source: Manpower Research and Statistics Dept, MOM


-15000

-10000

-5000

0

5000

10000

15000

20000

25000

30000

35000

2001 2002 2003 2004 2005

Year

Services

Manufacturing

Construction

6

Unemployment Rate Going Down (Seasonally Adjusted)

Source: Labour Force Survey, Manpower Research and Statistics Department, MOM, except data for June 2000 and June 2005 which are obtained from the Population Census and General Household Survey conducted by Department of Statistics, MTI respectively.

p: preliminary

0

1

2

3

4

5

6

7Rate (%)

Overall 3.6 3.5 3.5 3.6 3.7 3.7 4.7 3.9 3.8 3.6 2.9 3.1 3.3 3.4 3.2 2.6 2.6

Resident 5.0 4.6 4.7 4.9 5.0 4.8 6.0 5.2 5.0 4.8 3.8 4.1 4.3 4.5 4.2 3.4 3.4

M 02 J02 S02 D02 M 03 J03 S03 D03 M 04 J04 S04 D04 M 05 J05 S05 D05 M 06P

Resident Long-Term Unemployment Rate Higher than Decade Ago

(Non-Seasonally Adjusted)


p: preliminary

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6Rate (%)

LTU Rate 0.2 0.2 0.2 0.3 0.3 0.3 0.4 1.0 0.7 0.6 1.0 1.4 1.4 1.1 0.5

M92 M93 M94 M95 M 96 M 97 M98 M 99 M 00 M01 M02 M 03 M04 M05M06

P

7


Similarly for Number & Share of Long-Term Unemployed

p: preliminary

0

5

10

15

20

25

30Number ('000)

0

5

10

15

20

25

30

35

40Share (%)

LTU No. LTU Share

LTU No. 2.4 2.8 3.3 4.3 5.3 4.5 5.8 15.5 12.2 9.9 16.2 24.6 25.2 20.2 10.1

LTU Share 9.5 12.8 12.8 15.9 17.7 17.7 18.4 26.6 23.1 26.5 23.0 33.1 33.7 29.6 18.1

M92 M93 M94 M95 M96 M97 M98 M99 M00 M01 M02 M03 M04 M05M06

P

Challenges

8

n Proxy for structural unemployment: long-term unemployment

n Rationale: Belief that skills deteriorate over time (Ashenfelter & Card, 1999), implying that employers tend to hire someone with a shorter unemployment duration; consequently, the longer a person is unemployed, the lower is his chance of finding a job

Structural Unemployment

Long-Term Unemployment Rate: Singapore vs. OECD countries

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

Pro

port

ion

of e

cono

mic

ally

act

ive

(%)

Australia 3.8% 3.8% 3.2% 2.3% 2.9% 4.7% 6.2% 6.1% 5.2% 4.1% 4.1% 4.3% 4.1% 3.4% 2.7% 2.6% 2.4%

Canada 10.4% 10.5% 8.6% 8.0% 7.0% 8.8% 13.1% 16.2% 17.3% 16.2% 16.3% 15.6% 13.3% 11.2% 10.7% 9.0% 9.3%

Korea 0.3% 0.4% 0.4% 0.5% 0.5% 0.4% 0.3% 0.4% 1.0% 1.2% 0.6% 0.5% 0.4%

New Zealand 0.7% 0.9% 1.5% 2.3% 2.7% 4.3% 5.1% 4.6% 3.7% 2.4% 2.0% 2.2% 2.6% 2.4% 1.9% 1.5% 1.3%

Singapore 0.3% 0.4% 0.3% 0.3% 0.4% 0.6% 0.6% 1.5% 0.6% 0.7% 1.7% 1.4%

UK 7.4% 7.1% 5.4% 4.1% 3.5% 4.0% 5.5% 6.4% 6.1% 5.3% 4.7% 3.9% 2.9% 2.7% 2.4% 2.0% 1.9%

USA 1.0% 0.9% 0.7% 0.5% 0.6% 0.9% 1.5% 1.4% 1.2% 1.0% 0.9% 0.8% 0.6% 0.5% 0.5% 0.6% 1.1%

1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

9

Incidence of Long-Term Unemployment

34%

7%

9%

14%

17%

31%

42%

19%

16%

30%

35%

41%

21%

60%

28%

14%

45%

41%

48%

40%

18%

14%

25%

32%

39%

18%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

Australia Canada Korea New Zealand Singapore UK USA

Pro

po

rtio

n o

f th

e u

nem

plo

yed

by

age-

cate

go

ry (

%)

15-2425-54over 55ALL

1.5%

0.5%

1.1%

0.8%0.7%

0.3%

0.5%0.4%

Total Below 30 30-39 40 & Over

Mar 05 Mar 06P

(20.2)

(10.1)

(3.1)

(1.5)(2.6)

(1.6)

(14.5)

(7.1)

Extent & Likelihood of Resident Long-Term Unemployment


p: preliminary

Resident LTU Rate (%) and Number (‘000) by Age

10

0.9%

0.4%

1.4%

1.2%1.1%

1.0%

0.5%

0.9%

0.2%

0.4%0.5%0.5%

Total Below Sec Secondary Upp Sec Diploma Degree

Mar 05 Mar 06P

(10.1)

(20.2)

(6.9)

(4.8)

(6.4)

(2.1)

(2.4)

(1.4)(0.7) (0.9)

(3.8)

(1.0)


p: preliminary

Resident LTU Rate (%) and Number (‘000) by Education

Extent & Likelihood of Resident Long-Term Unemployment

1998-2005Volatile economy & labour market

1994-97Stable and growing employment

Economy Now More Volatile

0

50000

100000

150000

200000

250000

300000

350000

400000

450000

1994 1995 1996 1997

Cumulative Empl Change


-100000

-50000

0

50000

100000

150000

200000

250000

300000

1998 1999 2000 2001 2002 2003 2004 2005

Cumulative Empl Change

11

-100.0

-50.0

0.0

50.0

100.0

150.0

200.0

250.0

300.0

1998 1999 2000 2001 2002 2003 2004 2005

Cumulative Emp Change ('000)

Total Local Foreign

§ Economic growth has translated into jobs for Singaporeans

§ Based on medium-term GDP growth of 3-5% p.a., and projected resident labour force growth (local workers + unemployed), there will be enoughjobs for Singaporeans in the future

§ Key is relevance / match of locals’ skills to needs of more volatile job market

Structural Unemployment

Source: MOM

Aging Population, Aging Labour Force

4.028,1004.086,4003.458,30060 & Above

7.7179,70015.8344.5009.7164,80050-59

4.8221,50027.1590.90021.8369,40040-49

1.374,40027.6603,60031.3529,10030-39

0.821,90013.5294,20016.1272,30025-29

-1.3-35,40012.1263,70017.1299,10015-24

2.6490,200100.02,183,300100.01,693,100Total

% p.a.Number %Number %Number

ChangeJune 2004June 1994Age Group


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Labour Force Participation Rates of Older Workers Low but Rising

Males 1994

Males 2004

Females1994

Females 2004

0

20

40

60

80

100

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

Rate (%)


n Proportion of workers aged 50 & above in labour force projected to increase from 22% in 2004 to 29% in 2015

n Net increase of about 44,000 workers joining local workforce from now till 2010 will slow down to 24,000 per year due to falling fertility and aging of baby boomers

local labour force growth will slow

n To sustain econ growth and demand for workers, older workers likely to stay in labour force longer – concerns about impact on cost competitiveness and productivity

Further Aging of Labour Force and Slowdown in Local Labour Force Growth

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Educational Profile of Labour Force Improving at Same Time

20.5446,7009.8165,900Degree

10.8236,3005.897,700Diploma

11.4249,80012.2207,400Upper Secondary

25.5556,90030.3513,200Secondary

18.2397,50026.2442,900Primary / Lower Sec

13.6296,20015.7266,000No Formal

100.02,183,300100.01,693,100Total

%Number %Number

June 2004June 1994Age Group


n Recent study by SCAPE on effects of changing age and education composition of workers on productivity growth

n Change in quality of workers by age & education is measured using quality index. Growth rate in labour quality (d*) given by:

where s is compensation share (proxy for marginal product), b is employment share, and x is employment growth of labour input i

n Separate indices by age and education characteristics constructed

Case Study (2): Effects of Age & Education Composition on Productivity Growth

∑∑ =−= iiiii xqxbsd )(*

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n Using growth accounting framework, labour productivity growth given by:

Effects of Age & Education Composition on Productivity Growth

Compensation share of labour

Labourquality growth

by age

∑∑∑+===

+−+

+=−

N

Liii

H

hh

J

jjL aexvnzsey

111

)(

Labourquality growth by education

Growth in non-labour inputs per worker

Compensation share of non-labour inputs

(e.g., capital)

Total Factor Productivity

(TFP) Growth

Labour Prod Growth = Output Growth –

Employment Growth

Effects of Age & Education Composition on Productivity Growth: Results

0.5210.4180.119-0.003-0.008-0.0061984-2004

0.4660.3560.0550.0070.052-0.0041998-2004

0.5490.4500.151-0.008-0.038-0.0071984-1997

TotalDegreePost-Sec/ Diploma

SecPrimary or Lower

No Formal

Contribution of Labour Quality by Education to Productivity Growth(%)

0.212-0.0180.0400.0550.0730.0611984-2004

0.006-0.0280.0160.0110.0040.0031998-2004

0.315-0.0130.0520.0770.1080.0901984-1997

Total55 & over45-5440-4430-3915-29

Contribution of Labour Quality by Age to Productivity Growth (%)

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n Growth growth in labour quality by age declining rapidly, caused by aging of labour force and faster depreciation of technology-specific skills

n Of concern is the rising negative impact of workers in 55 & above age group on productivity growth, as it is a fast growing group

n Education still found to be key driver of labour quality improvements and productivity growth, with degree holders contributing the most


n Interestingly, improvements seen in quality contribution of lesseducated workers, possibly due to success of training programmes to enhance productivity and employability

n In contrast, quality contribution of better educated workers declined over time, signalling that even these workers could see their human capital eroded during periods of econ volatility

n In conclusion, more should be done to improve labour quality growth through education and/or arrest the fall in growth rate of labour quality by age. Otherwise, labour productivity growth could decline in the years ahead, thus adversely affecting our economic competitiveness and growth.


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Responses: Recent Labour Market Policies

n Singapore Workforce Development Agency (WDA) set up in Sep 2003 to drive workforce development initiatives

n Many training programmes put in place to enhance productivity and employability

q Most programmes targeted primarily at less educated, older workers (e.g., Skills Redevelopment Programme, place and train programmes for certain industries)

q A few targeted at better educated workers (e.g., strategic manpower conversion programmes)

Enabling Locals for Jobs

17

n Greater job and income security for less skilled, low wage workers vulnerable to structural unemployment

n Through workfare: q Reward older, low income workers with workfare

bonusq Employment assistance q Job re-creation programme to expand job

opportunitiesq Equip workers with generic basic skills like IT literacy,

Workplace literacy and numeracy

Helping Vulnerable Workers

n In view of aging population and labour force, Tripartite Committee recommended following key measures:q Expand employment opportunities for older workers

(e.g., through ADVANTAGE! scheme)q Enhance their cost competitiveness (e.g., accelerate

wage re-structuring)q Raise their skills and productivityq Shape positive perceptions towards older workers

Enhance Employability of Older Workers

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Wage Restructuring for Competitiveness & Jobs

Job redesign wage level by sector/company

wage structure HR/training/career

n Meet demand of industries for mid-level specialist manpower

n Introduce greater flexibility and responsiveness into foreign manpower framework

Introduction of ‘S’ Pass

19

Thank YouThank You

n Economically Active Population or LabourForce: Refers to persons aged 15 & over who were either employed or unemployed during the survey reference period.

n Economically Inactive Population: Refers to persons aged 15 & over who were not working, did not have a job to return to, and were not actively looking for a job during the reference period.

Glossary: Economic Terms & Concepts

20

n Employed Persons: Refers to persons aged 15 & over who, during the reference period: q Worked for 1 hr or more either for pay, profit or family

gains; or q Had a job or business to return to but were temporarily

absent because of illness, breakdown of machinery at workplace, labour management dispute or other reasons.

n Unemployed Persons: Refers to persons aged 15 & over who did not work but were available for work and were actively looking for a job during the reference period.


n Unemployment Rate: Defined as percentage of unemployed persons to total economically active persons aged 15 & over (or labour force).

n Long-Term Unemployed: Refers to persons who have been unemployed for 25 weeks or more.

n Long-Term Unemployment Rate: Defined as percentage of long-term unemployed persons to total economically active persons aged 15 & over.


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n Age-Sex Labour Force Participation Rate: Defined as percentage of economically active persons to total population in same age group and sex.


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Unemployment & Labour Market - Economic Society of · PDF file1 Unemployment & Labour Market Shandre Mugan Thangavelu Singapore Centre for Applied and Policy Economics Department of