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LABOUR FORCE
The labour force includes people who are either employed or unemployed .The unemployment
rate is the most commonly used indicator for understanding conditions in the labour market.
The labour market is the term used by economists when talking about the supply of labour (from
households) and demand for labour (by businesses and other organizations). Internationally, the
working age population (15 -64 years)

1.0 Concepts of labour force

1.1 Employed – includes people who are in a paid job for one hour or more in a week.
1. 2 Unemployed – includes people who are not in a paid job, but who are actively looking for
work.
1.3 Not in the labour force – includes people not in a paid job, and who are not looking for
work. This can include people who are studying, caring for children or family members on a
voluntary basis, retired, or who are permanently unable to work.

1.4 Labour force – the sum of employed and unemployed people.

1.5 Unemployment rate – the percentage of people in the labour force who are unemployed.
1.6 Participation rate – the percentage of people in the working-age population that are in the
labour force

2.0 Main types of unemployment

There are three main types of unemployment – cyclical, structural and frictional
unemployment. In practice, these cannot be measured directly, and they can often overlap, but
they provide a useful way of thinking about unemployment.

2.1 Cyclical Unemployment

Cyclical unemployment occurs with changes in economic activity over the business cycle.
During an economic downturn, a shortfall of demand for goods and services results in a lack of
jobs being available for those who want to work. Businesses experiencing weaker demand might
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reduce the amount of people they employ by laying off existing workers, or hiring fewer new
workers. As a result, people looking for work will also find it harder to become employed. The
opposite situation occurs when demand strengthens. An increase in cyclical unemployment
might suggest the economy is operating below its potential. With more people competing for
jobs, businesses might offer lower wage increases, which would contribute to lower inflation.
Policies that stimulate aggregate demand, such as expansionary monetary policy, can help reduce
this type of unemployment (because businesses experiencing stronger demand are likely to
employ more people).

2.2 Structural Unemployment

Structural unemployment occurs when there is a mismatch between the jobs that are available
and the people looking for work. This mismatch could be because jobseekers don’t have the
skills required to do the available jobs, or because the available jobs are a long way from the
jobseekers. Workers may become unemployed if they work in industries that are declining in
size or have skills that could be automated as a result of large-scale technological advances. It
may be difficult for them to find work in another industry and they may need to develop new
skills or move to a region that has more opportunities. For example, there has been a noticeable
decline in the share of people employed in routine manual jobs over recent decades with some of
these jobs being automated because of advances in technology. The manufacturing industry is an
example of an industry that has a high share of routine manual jobs and its size in the economy
has declined (both in terms of production and employment).

Structural unemployment tends to be longer lasting than other types of unemployment. This is
because it can take a number of years for workers to develop new skills or move to a different
region to find a job that matches their skills. As a result, workers who are unemployed because
of structural factors are more likely to face long-term unemployment (for more than 12 months).

In contrast to cyclical unemployment, structural unemployment exists even when economic

conditions are good. In theory, this type of unemployment should not directly influence wages or
inflation and is best addressed through policies that focus on skills and the supply of labour.

2.3 Frictional Unemployment

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Frictional unemployment occurs when people move between jobs in the labour market, as well
as when people transition into and out of the labour force. Movement of workers is neccessary
for a flexible labour market and helps achieve an efficient allocation of labour across the
economy. However, people may not find jobs immediately and need to invest time and effort in
searching for the right job. Businesses also spend time searching for suitable candidates to fill
job vacancies. As a result, people looking for jobs are not matched immediately with vacancies
and may experience a period of temporary unemployment.

This type of unemployment is generally shorter term (less than one month). Frictional
unemployment is likely to occur at all points of the business cycle and, like structural
unemployment, may not influence wages or inflation.

These three types of unemployment are not independent of each other. For example, a period of
high cyclical unemployment might lift structural unemployment. This could occur when people
are unemployed for such a long period that their skills and productivity deteriorate, and they
become seen as being less employable, reducing the probability that they will be hired in the
future.

2.4 Other Types of Unemployment

There are some other types of unemployment that are also important to consider. In particular,
the underemployment rate can be thought of as a complementary indicator to the unemployment
rate when thinking about conditions in the labour market.

2.4.1 Underemployment occurs when people are employed, but would like and are available
to work more hours. There are two categories of underemployed. First, part-time workers who
would prefer to work additional hours. Second, people who usually work full time, but are
currently working part-time hours. Underemployment rates are generally higher among groups
that have a larger proportion of people working part time.

2.4.2 Hidden unemployment occurs when people are not counted as unemployed in the
formal labour market statistics, but would probably work if they had the chance. For example,
someone might have looked for work for a long time, given up hope and stopped looking, but
still wish to work. (These people are sometimes referred to as ‘discouraged workers’.)
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2.4.3 Seasonal unemployment occurs at different points over the year because of seasonal
patterns that affect jobs. Some examples include fruit pickers and holiday-related jobs.

3.0 Unemployment and inflation – Philips curve

• The Phillips curve shows the short-run combinations of unemployment and inflation that
arise as shifts in the aggregate demand curve move the economy along the short-run
aggregate supply curve.

• The greater the aggregate demand for goods and services, the greater is the economy’s
output, and the higher is the overall price level.

• A higher level of output results in a lower level of unemployment.

• The Phillips curve states that inflation and unemployment have an inverse relationship.
Higher inflation is associated with lower unemployment and vice versa.

• In the 1960s, Friedman and Phelps concluded that inflation and unemployment are
unrelated in the long run.

• As a result, the long-run Phillips curve is vertical at the natural rate of unemployment.

Monetary policy could be effective in the short run but not in the long run. In a long run
monetary policy cannot change the natural rate, but other government policies that
strengthen labor markets can

• The “natural” rate of unemployment is the rate to which the economy gravitates in the
long run.

• The natural rate is not necessarily desirable, nor is it constant over time.
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Inflation is higher when unemployment is low and lower when unemployment is high. What
does it mean if a Phillips curve shows that unemployment is high? If a Phillips curve shows that
unemployment is high and inflation is low in the economy, then that economy is producing at a
point where output is less than potential output/GDP.

4.0 Causes of unemployment

Unemployment is caused by various reasons that come from both the demand side, or employer,
and the supply side, or the worker.
• Demand-side reductions may be caused by high interest rates, global recession, and
financial crisis.
• Supply side, frictional unemployment and structural employment play a great role.
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 This occurs when wages in a competitive labour market are pushed above the
equilibrium, e.g. at W2 the supply of labour (Q3) is greater than the demand for labour
(Q2) leading to unemployment.
 Wages could be pushed above the equilibrium level by minimum wages or trades unions.
This is sometimes known as “disequilibrium” unemployment.

5.0 The causes of unemployment are from both supply and demand of the labour
market, generally the causes are:
 Economic growth: It is strongly emphasized the importance of the rate of economic growth
as a determinant of the rate of unemployment, and its main conclusion was that the rate of
economic growth needed to be increased to substantially reduce unemployment. Its main
prescription as a result (alongside a considerable expansion of labour market programs), was
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to maintain or increase the rate of microeconomic reform, in order to raise the rate of
economic growth. Since that time, the unemployment debate appears to have reflected a
growing view that while raising the rate of economic growth is a good aim. They also
emphasize the benefit to be had from less drastic recessions. Nonetheless, they point out that
higher growth is not a panacea because it brings with it the potential for rising inflation. If
real wages increase at half the rate of economic growth, we get about a one per cent lower
unemployment outcome than if they increase at the same rate as output growth. This
highlights how both economic growth and real wages are influential in determining the rate
of unemployment.
 A collapse in the demand for unskilled workers: Studies suggests that the demand had
been falling faster since the beginning of the 1980s. Evidence was presented for Australia
that between the mid 1980s and the early 1990s, the ratio of the unemployment rate of the
high skilled to the rate of unemployment of the low skilled (based on educational attainment)
had reduced significantly. The data on unemployment rates by educational attainments,
which also suggest that degree and diploma holders have fared much better in the market
than either those who leave education after Year 12 or before. The former group had an
increase in their unemployment rate from about 4 per cent to about 5 per cent. There is a shift
in demand towards higher-skilled labour. The skill-biased technological change has worked
against low-skilled workers, but the way that it affects them depends upon the flexibility of
the labour market. It is argued that ‘labour market adjustments to changes in the relative
demand for skill also depends upon education and training policies, macroeconomic policies
and experiences, and wage-setting institutions in a manner possibly more complicated than
suggested by a simple diabolical trade-off between inequality and unemployment’.

 Real wages: Probably the greatest degree of consensus exists about the importance of real
wages in determining the level of employment and unemployment. The two wages
explosions were very significant episodes in the long-run growth of unemployment in
Australia and we have not yet recovered from them. Studies indicate that a slower growth of
real wages of 2 per cent for a year would lead to a permanent reduction in the unemployment
rate of around 1 percentage point. They estimate that if the natural rate of unemployment is
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about 7 per cent, and that to get it down requires a structural change in the labour market to
produce a significant decline in the equilibrium real wage.
 Occupational immobility: This refers to the difficulties in learning new skills applicable
to a new industry, and technological change, e.g. an unemployed farmer may struggle to
find work in high tech industries.
 Geographical immobility: This refers to the difficulty in moving regions to get a job,
e.g. there may be jobs in Dar es Salaam, but it could be difficult to find suitable
accommodation or schooling for their children in Dar es Salaam.
 Technological change: If there is the development of labour-saving technology in some
industries, then there will be a fall in demand for some types of labour which have been
replaced by machines.
 Structural change in the economy. The decline of the copper mines in Zambia due to a
lack of competitiveness meant that many coal miners were unemployed. However, they
found it difficult to get jobs in new industries such as computers.

6.0 Cost/ consequences of unemployment

Unemployment is a major life event. It can have a devastating impact on people’s lives. It affects
not just the unemployed person but also family members and the wider community. The impact
of unemployment can be long-lasting. As unemployment becomes more long-term, its impact
becomes more far reaching, often affecting living standards in retirement. The loss of income by
the parents can damage the prospects of the next generation. Quite apart from the personal
impact, unemployment is a loss of valuable productive resources to the economy. The impact of
job loss in rural and regional areas flows through the local community damaging businesses as
family expenditure is reduced. Further damage to local communities may result from people
leaving in search of work.

6.1 Financial Impact

The economic loss to the individual and the family cannot be overstated. The Treasury advised
that in the short-term, unemployment significantly reduces a person’s income and, in the long-
term, reduces their ability to save for retirement and other goals. This is because employer as
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well as employee superannuation contributions are lost and the capacity to save from disposable
income is lowered.

6.2 Government budget

Treasury advised that unemployment costs the government budget through:
 Reducing current and future tax revenue and receipts, including those on superannuation
and investments
 A greater number of people receiving age pensions, including higher payments for those
who retire early and run down superannuation
 Greater spending on health, education and other social services

6.3 On individuals and families

 Psychological impacts
The impact of unemployment on mature-age people is common. The psychological and social
costs of retrenchment and prolonged unemployment during the productive years of life impact
harshly on the quality of life of the affected individuals and families. Experiences of low self-
esteem and loss of self identity impact on physical and mental health and can extend to broader
consequences of social isolation and the loss of social networks and support.
 The impact of redundancy
This causes family disruption and breakdown. At the very least it reduces people’s sense of
membership and contribution to the life of the community. It is just not a good time to start
addressing some of the life changing problems. Loss of employment also results in people losing
a sense of being in control of their destiny, loss of self-esteem and confidence resulting from job
loss can operate as barriers to re-employment. For many people, work provides a social network
and often a reason for social interaction. Loss of income also limits the ability of people to attend
social functions. Self-esteem and confidence were reported as being lost more quickly by
mature-age job seekers than job seekers in other age groups. Also it is reported that one of the
serious consequences of isolation from the workforce is that it reduces prospects for re-
employment. Contact through social networks is a very important means of finding out about
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available jobs. A further consequence is a loss of social standing that increases the sense of
isolation and alienation experienced through no longer being part of the workforce.

6.4 Grief
A consistent theme put before the inquiry was that many policies and services frequently do not
recognize the emotional trauma induced by unemployment and the reverberating effect that this
has on the family. Many submissions argued that the compounded grief arising from
unemployment rarely receives the support, counseling, compassion and sympathy that a major
loss deserves. Some service provider personnel (Central link and Job Network) were criticized
for not having life experience appropriate to the age of their clients and for failing to empathies
fully with the problems and issues facing mature-age unemployed people.

6.5 Family relationships

Unemployment had affected family relationships. Much of the disturbance or stress placed on
relationships was attributed to the changing of the breadwinner role between partners, which for
mature-age couples, is often traditionally held by males. The changed relationships within the
family and the fact that one member of the family now spends more time at home with no clearly
defined role’ can lead to frustration and resentment.

6.6 Health consequences

The impact unemployment has on the health of its victims. The evidences that unemployment
causes higher levels of mortality, physical and mental ill health is common. Unemployment
generally impacts most strongly on the health of those already socio-economically
disadvantaged. The fact that ill health and incapacity can also cause unemployment increases the
complexity of any analysis. However, cautioned that the relationship between unemployment
and health is complex and differs among groups of people, it reported that there is ‘convincing
evidence that unemployment also has a direct effect on health over and above the effects of class,
poverty, risk factors or prior ill-health’. Why unemployment causes poor health? Three
predominant themes have been offered to explain the link between unemployment and poor
health: poverty; psychological effects; and health related behaviours and lifestyle factors.
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Poverty reduces people’s capacity to buy nutritious food, housing and health care.
Unemployment can indirectly affect health because of reduced participation in society or from
the stress of financial strain. There is less convincing evidence about the health impact of
changes in life-style after losing work. ‘It is generally agreed that health-related behaviour
change, either as a confounding factor or as an intervening variable, does not account for the
impact of unemployment on health

6. 7 Morbidity and mortality

The evidence from international research shows that there is a significant and detrimental impact
on health from being unemployed. The National Health Survey in Australia in 1995 showed that
the proportion of unemployed men who reported their health as ‘fair’ or ‘poor’ (as against ‘good’
or ‘excellent’ health) was double that of employed men, for all age groups. Differences were
greatest for unemployed 45-54 year old males compared to employed males. Likewise, mortality
rates in local areas classified as the most socio-economically disadvantaged are significantly
higher than in the areas classified as the least disadvantaged. The analysis showed that mortality
was 12 per cent higher for males in the most disadvantaged areas compared to the average, and
30 per cent higher than for males in the least disadvantaged areas. The variation was less for
female mortality, being 16 per cent higher in the most disadvantaged areas compared to the least
disadvantaged areas. The evidence suggests that the impact of unemployment on mental health is
dependent on the social support systems available at the time

6.8 Impact on family health

A survey done in Australia showed that children without an employed parent had 26 per cent
more serious chronic illnesses, visited the doctor 20-30 per cent more often and made twice as
many outpatient visits compared to children of employed parents. However, caution must be
used in interpreting this data since the relationship between causal and effect is complex. While
few studies have examined the effects of unemployment on others in the family, there is some
evidence from a study in England and Wales that mortality rates are 20 per cent higher for wives
of unemployed men. Unemployment also results in a higher risk of separation and divorce,
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domestic violence, unwanted pregnancy, increased peri-natal and infant mortality, poorer infant
growth and increased use of health services

6.8 In a wider community

Unemployment also has consequences for the wider community. Not only is there a greater
reliance on income support but the skill level of workers who have difficulties getting another
job may fall, which is a loss to the economy. The health consequences of unemployment result in
a greater strain on the health system. Regional and rural areas may experience particularly severe
economic upheaval.

6.9 Skill loss in the labour market.

A significant disadvantage suffered by mature-age job seekers is that their skills tend to be lost
over time, particularly as they are more likely to experience longer periods unemployed. These
skills are also lost to the labour market and industry. It is argued that this loss has to a large
extent not been measured. However, some of these skills would have become obsolete as
technological and industrial changes have resulted in new skills being required. It is becoming
more important in the modern workplace for existing skills to be upgraded and for new skills to
be acquired. Unfortunately, many mature-age job seekers do not have access to training to enable
them to develop and acquire skills. Even within employment there is evidence that older workers
have less access to training.

6.10 Regional impacts

The impact of unemployment is often more strongly felt in regional economies owing to their
smaller scale. Many studies indicated that restructuring had significant flow on effects for their
economies. Many studies reported that mainly low skilled or basic trade-skilled people were
casualties of downsizing and closures across a wide range of industries. Many people were also
being made redundant from ancillary service industries in the manufacturing sector. Most reports
show that duration of unemployment is significantly greater for mature-age job seekers living in
non-cities areas. Problems of unemployment are exacerbated in regional areas because most
employment growth has been in capital cities. This causes problems for mature-age job seekers.
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They tend to have greater established links in their home communities. The cost of relocation can
also be very high, particularly since housing is more expensive in capital cities than in regional
areas. This maintained that there is a polarization between high income, low unemployment
areas and low income, high unemployment areas across the country. It is argued that the
government needs to become more active in direct job creation and investment in physical
infrastructure that the private sector will not pick up because it is not profitable. Polarization is,
however, not limited to regional areas but also occurs in cities.

7.0 Solutions for unemployment

There is a great concern that unemployment has increased the crime wave and the induced
problems such as; kidnapping, armed robbery, prostitution, cultism, prosecessionist movements
and so on are indicants leading Countries to an anticlimax. These unfortunate events and
situation are in the mind of the by-products of unemployment and by extension, poverty for
which the convergence utility of the entrepreneurship models is being offered as a panacea to the
anomaly. In view of the obvious consequences of unemployment in any nation’s economy, there
is need for pragmatic and legislative effort of the government in order to turn around the fortunes
of the country and save the country from the brink of chaos. Some solutions are as follows:
 Restraining the general level of real wages: Real wage restraint in the accord produced
positive employment benefits and reduced the level of unemployment. In the past few
years of enterprise bargaining and very low inflation, real wages have moved ahead
again. However, the growth in real wages appears to be declining now that low
inflationary expectations are getting ‘locked in’ although they may be still rising
significantly. There is widespread agreement amongst economists that holding down real
wages would offer great hope for significantly lower unemployment.
o Wages policy – a wage-tax trade-off is one solution, as adopted would be a
wages policy. It is proposed modest wage increases that actually entailed for
some time a reduction in real wages. The main problem they face under the
current wage-setting system is that many fewer employees now depend
essentially upon award wages handed down by industrial tribunals. It is likely,
however, that many wages determined by enterprise bargains may also be
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influenced by what happens to award wages. If there were no adjustments to the

‘wages safety net’, that is, wages in awards is frozen for, say, four years, this
could be expected to lead to a reduction in their real wage value.One of the main
side effects of such a policy would be to cause a widening in the distribution of
earnings as higher-paid employees on enterprise bargains would be less affected
than lower-paid employees. It seems unlikely therefore that the Industrial
Relations Commission would agree to a freezing of award wages, unless low-
paid workers could be compensated in some other way. The possible solution is
for the workers union or government is to compensate low-paid workers through
the tax-transfer system, by awarding them tax credits. One advantage of such a
policy is that low-paid workers who are in families with children could be
awarded higher tax credits than those without children, also concern to low-paid
workers who are affected by their family circumstances.
o The wage-setting and industrial relations system: Analysis of the effect of the
wage-setting system suggests that there are two broad strategies to achieve lower
real wages and therefore greater employment and lower unemployment. One is
for centralized co-ordination of wages so that powerful unions agree to wage
moderation so that everyone can benefit (thus internalizing an externality). The
other is to have highly decentralized wage-setting, so that any individual wage
bargain that seeks to achieve higher wage increases than the norm does not get
passed on through the principle of comparative wage justice with the danger of
pricing the associated labour out of the market. This reform further emphasizes
decentralized wage-setting and reduces the power of the unions to have a general
effect on wage growth, through such things as disallowing secondary boycotts
etc.

o The unemployment benefit system: More generous unemployment benefit

system is likely to raise the natural level of unemployment and that particularly
the rise in unemployment benefits probably had this effect. It was also noted that
the duration of unemployment benefits is an issue. Countries like the US where
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unemployment benefits cut out after a while probably have an advantage in terms
of keeping the rate of unemployment, especially long-term unemployment, down.
The problem, however, that we face is that cutting unemployment benefits or
reducing their duration would have significant negative effects, at least in the
short term, on many people towards the bottom of the income distribution. It
should be added that this issue needs to be thought of in the context of the social
security system in general and the interface of that system with the tax system.
The combination of means-tested social security benefits such as unemployment
benefits and family payments, along with the effect of income taxation, mean that
for many individuals, and especially families, the monetary benefits from taking a
job or moving from part-time to full-time work are often very low, and especially
when you add in the cost of work-related expenses.

o Negative income tax: As a radical solution to this problem, all of social security
benefits is replaced by a tax-credit system, which is a version of what is
sometimes called ‘negative income taxation’. A full ‘basic income flat-tax
system’ is the most radical version of this and would reduce effective marginal
tax rates considerably for low-income families and increase the incentive to
work. This idea was recommended earlier in this paper as a complement to
freezing award wages, so that those on low wages, especially families with
children, were not detrimentally affected, and many could become better off. This
would contribute to avoiding the diabolical trade-off. While we may need to
accept a wider distribution of earnings and reforms to the unemployment benefit
system that increases the incentive to work so that it improves the wages in the
way that does not have overall adverse effects on equity.
 Focusing on the low skilled:
It appears to have been a collapse in the demand for low-skilled workers. This suggests
that while we should consider policies aimed at reducing the general level of
unemployment, there is also a special case for policies targeted at the low skilled that
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have the highest rate of unemployment and one that has been growing faster than for
other employees

o Labour market programs: Given the high incidence of unemployment among

unskilled workers, it seems inevitable that active labour market polices will remain
very important for some time to come. To integrate the government to active
programs as closely as possible with benefit and placement work;

o Entrepreneurship education of the masses: The one best way of achieving this
is through convergence utility of entrepreneurship models. Herrington and Kew
(2014) contended that entrepreneurship no doubt is globally recognized as
strategic mechanism or the driving force of any sustainable economic growth,
through its innovation, creativity and job creation as well as its welfare effects on
poverty across cultural, geographical and economic boundaries. Also,
entrepreneurship boosts productivity by introducing new innovations and
fasttracking structural changes thereby forcing existing businesses to reform and
increase competition (Kareem, 2015)
 The role of economic growth: There is some evidence that the long-run rate of economic
growth may have risen in recent times because of an increase in total-factor productivity
growth It is suggested that there has been an increase in the long-run rate of economic
growth in recent times, although it would be interesting to see how sensitive this estimate is
to the choice of time period. This does beg the question of why employment growth has not
been stronger and why unemployment has not come down more. A related question is why
has the current business cycle recovery not brought with it much greater increases in
employment and reductions in unemployment? There are a number of possible answers to
these questions, all of which could be contributory explanations. One is that we have not
fully exploited the potential noninflationary growth rate yet. We can perhaps run the
economy faster on the demand side. The second is that that the rate of productivity growth
has been high and the rate of economic growth required to reduce unemployment has
become commensurately higher. Part of the possible explanation for rising productivity
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growth is a period of substantial downsizing of companies, which might, in principle, allow

for the shed labour to be productively utilized elsewhere, though this could take a
significant amount of time to happen. A third explanation is that in a period in which
inflation has reduced considerably, it has taken some time for wage expectations to adjust
downward, and thus wage increases in the mid 2000s have been higher than would
normally be associated with such a low level of inflation. Thus real wages have been
growing faster in the current recovery phase of the business cycle than would normally be
the case. A fourth explanation could be that enterprise bargaining has been part of the cause
of productivity increase but most of the benefit has gone into higher real wages which has
tended to confine the benefits to the ‘insiders’.

Should We Aim to Reduce Unemployment Substantially?

For aiming to reduce unemployment substantially we argue to adopt a reform package aimed at
reducing the level of unemployment.
o Winners and losers and the problem of politics: Nonetheless the package of
policies proposed here can be expected to have winners and losers. The main
winners would be those employees who would otherwise have been unemployed.
There would however, be losers amongst those people who would have been
employed anyway but whose net income turns out to be lower. Some people
would have lower wages than they would have otherwise, although changes to tax
and social security would make some of them better off. Other wages may not
have been affected much but their tax rates may be higher. Major policy packages
which have significant winners and losers tend to make politicians nervous. They
tend not to like policies with losers. The more the policy package can be designed
as a positive-sum game, the more likely the politicians will adopt it. It is very
unlikely; however, that there would not be some losers and this reinforces the
need to raise the profile of the importance of reducing unemployment for the
national interest.
o Uncertainties involved: A further problem is that the effects of embarking upon
a policy package are uncertain. I have argued that adopting the policies proposed
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above might be able to reduce unemployment to certain per cent remain uncertain.
For the same reason, estimates of the budgetary cost of such policies are also
uncertain. Judgments then have to be made as to whether the uncertain benefits
are likely to outweigh the uncertain costs.

UNEMPLOYMENT COMPUTATIONS
 Dependency ratios: A useful summary measure to analyze the age structure of a
population is the dependency ratio. It is a measure showing the number of dependents
(children aged 0 to 14 and the older population aged 65 and over) to the core working age
population (15-64 years):
Dependency ratio = Children (0 −14 years) + Aged (65years+)/ Working Age (15 − 64 years).
The dependency ratio may be interpreted as the number of dependents that a worker on
average must provide for in the society. The higher the ratio, the higher is the burden on
those working. The dependency ratio may be decomposed into two parts, one showing:
Child dependency ratio = Children (0 −14 years) /Working Age (15 − 64 years) and
Aged dependency ratio = Aged (65years+) Working Age (15 − 64 years). The
dependency ratio and its decomposition for the world population in 2010 shows that the
dependency ratios in Tanzania and Nigeria are above the world average, which is about
50%, i.e. for every dependent person there is on average two working age persons. In
Tanzania and Nigeria, for every dependent person there is just a little more than one
working age person. It also known that the lowest dependency ratio is in Iran (about
40%).

 Labour force participation rate (LFPR): The LFPR is an indicator of the level of
labour market activity. It reflects the extent to which a country’s working age population
is economically active. It is defined as the ratio of the labour force to the working age
population expressed in percentage terms: LFPR = 100 x ( Labour force/ Working Age
Population). The breakdown of the LFPR by sex and age group gives a profile of the
distribution of the economically active population (EAP) within a country. National
LFPRs and highlights of the data are published every two years as part of the ILO Key
Indicators of the Labour Market (KILM). Annual estimates and projections spanning the
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period 1980 to 2020 are also available as part of the database of the ILO Department of
Statistics. The global LFPR in 2010 by sex and age group is graphically presented for
illustration. Like most national rates, the world’s LFPR has an inverted-U shape, more
pronounced for men than for women. The male curve is above the female curve,
reflecting the higher LFPR of men at all age groups. For each sex, the curve increases at
low ages as young people leave school and enter the labour market, reaches a peak in the
age group 35-39 years for men and 40-49 years for women, before decreasing, slowly for
women and more sharply for men, as people leave and retire from the labour market at
older ages

 Employmentpopulation ratio: Aggregate employment generally increases with growing

population. Therefore, the ratio of employment to the working age population is an
important indicator of the ability of the economy to provide employment to its growing
population. A decline in the employment-population ratio is often regarded as an
indicator of economic slowdown and a decline in total employment an indicator of an
even more severe economic downturn. The employment population ratio is defined in
percentage terms as:
Employment-population ratio = Number Employed/ Working Age Population. The
working age population is variously defined as the population 15 years old and over, the
population 15 to 64 years old, or other more restrictive age intervals as proposed by
authorities in different countries. It may be calculated separately for men and women and
by age group and other variables of interest such as educational attainment and urban-
rural place of residence. The ratio generally changes faster than the LFPR and slower
than and in an opposite direction to the unemployment rate. Two particular uses of the
employment-population ratio are given below. One use is for monitoring the performance
of the labour market over time by observing the direction of annual change in the
employment-population ratio of the prime-age population (ages 25-54), called here the
core employment-population ratio. When the economy is growing, this ratio should
increase, or at least remain unchanged, reflecting a certain harmony between the growth
of the population and employment. Because the proposed indicator is restricted to the
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working age population 25 to 54 years old, it is not affected by the increased schooling of
young people or earlier and lengthier retirement among the elderly, two phenomena often
observed in many countries. Also, because the calculation of the ratio does not require
data on unemployment, the indicator should be less controversial than the unemployment
rate.

 Unemployment rate: The unemployment rate is the most commonly used indicator of
the labour market. It is defined as the percentage of persons in the labour force who are
unemployed: Unemployment rate =100 x Number Unemployed/Labour Force. The
unemployment rate is a measure of imbalance in the labour market representing the
extent of unutilized labour supply of the country. It is also sometimes used in a general
sense as an indicator of the health of the economy, not just the labour market.
Unemployment rates for specific categories of the labour force, such as men, women,
youth, adults, geographic regions, or specific (past) occupations and branches of
economic activity, shed light on the groups of workers and sectors of the economy or
regions most affected by unemployment.