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v. MAKING LABOUR FORCE PROJECTIONS USING LABOUR
FORCE PARTICIPATION RATES
A. Introduction
Labour force proj ections can be extremely useful in preparing comprehensive plans to accommodate future population change, particularly changes in the working-age population (box 7) and labour force. When used along with employment projections labour force projections can be used to analyse potential future imbalances in the labour market. Specifically, when projected levels of the labour force are compared with the projected levels of employment, it is possible to identify future surpluses or shortages of labour. The analysis can indicate whether projections of population and value added, factors influencing the supply of labour and demand for labour, are realistic and whether the policies underlying those projections will lead to a balance between the supply and demand sides of the labour market.
This chapter describes a method for preparing labour force projections that applies assumed labour force participation rates to the projected population at different dates. This method, which has been used in many planning exercises, yields the labour force, classified by age and sex along with various indicators of labour force size, structure and change. The method is suitable for making national or urban-rural projections.!
The method would be easy to apply in most developing countries. It does not require extensive data nor does it entail laborious calculations.
When using the method to make an urban-rural projection, however, caution should be exercised if the population projection that underlies the labour force projection is based on a de jure population count. In that case, the urban and rural labour forces would correspond to the labour supplies provided to the urban and rural labour markets only if for the large majority of the labour force, the area of residence was the same as the area of work. Where a sizeable proportion of the urban labour force consisted of commuters or seasonal migrants from rural areas, it would be misleading to treat the urban and rural labour forces as equivalent to the labour supplies provided to these labour markets.
This chapter will first describe the procedure for projecting the labour force. It will then describe inputs required and discuss how assumptions on labour force participation rates can be formulated. Lastly, the chapter will present two illustrative labour force projections, one for the entire country and the other for urban and rural areas.
Box 7
Glossary
Demand for labour The quantity of labour that users of labour services desire to purchase at prevailing wages and salaries.
Labour force participation rate The number of persons in the labour force of a given age, sex and/or level of education, divided by the corresponding total number of persons with the same characteristics.
Labour market The market through a employed as
in which labour services are bought and sold process that determines the number of persons well as wages and salaries.
Sex ratio of labour force The number of males in the labour force, divided by the corresponding number of females and conventionally multiplied by a hundred.
Supply of labour The quantity of labour that owners of labour services desire to sell at prevailing wages and salaries.
Value added For a firm or farm, the difference between its total revenue and the cost of raw materials, services and components used in production, over a specified time period; for the economy as a whole or any of its industries, the aggregate of value added of different firms or farms of which the economy or industry is composed.
Working-age population The population in the working ages, conventionally defined as 15 to 59 years or 15 to 64 years.
B. The technique
- Overview
This overview will first indicate the types of inputs required by the labour force participation rate m.ethod and list the types of outputs that it can generate. Also, the overview will outline the computational steps required to prepare a labour force projection using this method.
urban and rural areas as well as for the entire country. In addition, the results would include indicators of the urban-rural distribution of the labour force. The types of outputs that the method can generate as part of the national or urban-rural projection are shown in box 9.
Box 9
Types of outputs obtained by projecting labour force using labour force participation rates
- Structure of the labour force by age and sex (national or urban, rural and national)
- Labour force aggregates (national or urban, rural and national)
Total labour force and labour force by broad age group and sex
Growth in total labour force and in labour force by broad age group and sex
- Indicators of structure of the labour force (national or urban, rural and national)
Proportions of the labour force at different broad age groups, median age of the labour force and sex ratio of the labour force
- Indicators of the urban-rural distribution of the labour force (national only; if urban and rural labour force are being projected)
Proportions of the labour force in different residential locations
- Rates of growth of the labour force (national or urban, rural and national)
Rates of growth of the total labour force and of the labour force disaggregated by broad age and sex groups
These results would be for dates five years apart or the intervening projection intervals.
(c) Computational steps
The first step of the procedure is to calculate the structure of the labour force disaggregated by age and sex. This structure is obtained from the age and sex structure of the population at age 10 and over and age- and sex-specific labour force participation rates. The procedure also entails
deriving for each projection date the total labour force along with other date-specific indicators. These results can then be used to calculate the absolute growth in the labour force and the rates of growth for the intervening intervals.
- National level
This section will initially elaborate the steps to compute the structure of the labour force. Then it will explain the steps needed to derive other results for a given projection date or interval at the national level. A summary of those steps is presented in box 10. The steps used to derive urban and rural labour force structures together with the related results will be described in a later section.
Box 10
Computational steps needed to project the labour force at the national level
The steps used to project labour force at the national level over a five-year projection interval are:
(1) Coq>ute the structure of the labour force by age and sex by applying age-specific and sex-specific labour force participation rates to the number of persons in different age and sex groups.
(2) Derive fran the structure of the labour force various labour force aggregates, such as the total labour force and the numbers of persons in the labour force in broad age groups. Also, calculate other labour force aggregates, such as the growth in total labour force and the increase in labour force in different broad age groups over the projection interval.
(3) Derive indicators of the structure of the labour force, such as proportions of labour force in broad age groups and the sex ratio of the labour force.
(4) Coq>ute the rates of growth of the total labour force and of the labour force by different broad age group and sex over the projection interval.
(a) Labour force structure
The number of persons in the labour force, classified by age and sex, at a given date, such as the end of a five-year projection interval (t to t+5) can be obtained as follows:
a. Total labour force
The total labour force can be obtained by aggregating the number of persons in the labour force across the range of age groups and sexes. For the end of a projection interval (t to t+5) this number can be calculated as follows:
LF(t+5) = I
a=
where:
2
I LF(a,s,t+5),
s=
(2)
LF(t+5) is^ the^ total^ labour^ force^ at^ the^ end^ of^ the^ interval.
b. Labour force in broad age groups
The age span 10 and over may be subdivided into broad age groups, e.g. 10-24, 25-64 and 65 and over. The first group might include younger members of the labour force, persons who are still of school-age, many of whom are just entering the labour force. The second group cons ists of labour force members who are in their prime working years, 25-64, and the third group, aged 65 and over, would include elderly members of the labour force.
i. Young-age labour force
The number of persons in the youngest component of the labour force can be obtained by aggregating the number of male and female members of the labour force who belong to age groups 10-14 through 20-24:
5
LFY(t+5) = I
a=
where:
2
I LF(a,s,t+5),
s=
(3)
LFY(t+5) is the number of persons in the young-age labour force at the end of the interval.
ii. Prime-working-age labour force
The number of persons in the prime-working-age labour force can be derived by summing the number of males and female in the labour force at age groups 25-29 through 60-64:
LFP(t+S) = I
a=
where:
2
I LF(a,s,t+S),
s=l
(4)
LFP(t+S) is^ the^ number^ of^ persons^ in^ the^ prime-working-age labour force at the end of the interval.
iii. Old-age labour force
The number of persons in the old-age labour force can be derived by adding up the number of males and females in the labour force who are 6S or older:
LFO(t+S) = I I LF(a,s,t+S),
a=14 s=l
where:
(S)
LFO(t+S) is^ the^ number^ of^ persons^ in^ the^ old-age^ labour^ force at the end of the interval.
c. Labour force disaggregated by sex
In addition to the labour force within different broad age groups, it is also possible to compute the number of males and females in the total labour force and each of its age components. For the sake of brevity, this section will discuss only the disaggregation of the total labour force.
i. Kale labour force
The number of males (s=1) in the labour force can be calculated by summing up males of different age groups who are in the labour force:
LF(s,t+S) = I LF(a,s,t+S);
a=
s = 1,2,
where:
(6)
LF(s,t+S) is^ the^ number^ of^ persons^ of^ sex^ s^ in^ the^ labour force at the end of the interval.
where:
LFYGR
LFPGR
LFOGR
is the growth in the young-age component of the labour force over the interval,
is the growth in the prime-working-age component of the labour force over the interval, and
is the growth in the old-age component of the labour force over the interval.
f. Growth in male and female labour force
The increase in the number of males (or females) in the labour force can be obtained as:
LFGR(s) = LF(s,t+S) - LF(s,t);
s = 1,2,
where:
(12)
LFGR(s) is^ the^ growth^ in^ the^ component^ of^ the^ labour^ force consisting of persons of sex s over the interval.
(ii) Indicators of the structure of the labour force
Once the various labour force aggregates are obtained, it is possible to derive proportions of labour force found in different broad age groups. It is also possible to calculate the median age of labour force and the sex ratio of the labour force.
a. Proportions by broad age groups
The proportions of labour force found in the broad age groups identified above can be obtained as follows:
The proportion of young-age persons in the labour force is equal to the young labour force divided by the total labour force:
PLFy(t+S) = LFy(t+S) / LF(t+S), (13)
The proportion of prime-working-age persons in the labour force is equal to the prime working age labour force divided by the total labour force:
PLFP(t+S) = LFP(t+S) / LF(t+S), (14)
The proportion of old-age persons in the labour force is equal to the old age labour force divided by the total labour force:
PLFO(t+S) = LFO(t+S) I LF(t+S),
where:
(15)
PLFY(t+S)
PLFP(t+S)
PLFO(t+S)
is the proportion of young persons in the labour force at the end of the interval,
is the proportion of prime-working-age persons in the labour force at the end of the interval, and
is the proportion of old-age persons in the labour force at the end of the interval.
b. Median age of labour force
The median age of the labour force can be derived using the standard formula for computing the median age from grouped data.ll If applied to the age structure of the labour force, this formula is:
a'-l
MALF(t+S) = (a' - 1) • 5 + [ ( LF(t+S)/2 - I
a=
2
I LF(a',s,t+S) ] • 5,
s=l
where:
2
I LF{a,s,t+S) ) I
s=l
(16)
MALF(t+S)
a'
is the median age of the labour force at the end of the interval, and
is the number that stands for the five-year age group containing the member of the labour force who is older than one half of the total labour force and younger than the other half.
b. Rates of growth in young-age. prime-worting-age and old-age labour foree
The average annual rates of growth of the labour foree disaggregated into broad age groups can be obtained as follows:
The growth rate of the young-age eomponent of the labour foree is ealeulated as;
GRLFY = [ ( In ( LFY(t+S) I LFY(t) ) ) I 5 ] • 100, (19)
The growth rate of the prime-worting-age component of the labour force is calculated as;
GRLFP = [ ( In ( LFP(t+S) I LFP(t) ) ) I 5 ] • 100, (20)
The growth rate of the old-age eomponent of the labour force is calculated as:
GRLFO = [ ( In ( LFO(t+S) I LFO(t) ) ) I 5 ] • 100,
where:
(21)
GRLFY
GRLFP
GRLFO
is the average annual exponential growth rate of the young-age component of the labour force for the interval,
is the average annual exponential growth rate of the prime-worting-age component of the labour force for the interval, and
is the average annual exponential growth rate of the old-age component of the labour force for the interval.
c. Rates of growth in male and female components of the labour force
The growth rates of the labour force of either sex ean be obtained as:
GRLF(s) = ( In ( LF(s,t+S) I LF(s,t) ) ) I 5 ] • 100;
s = 1,2,
where:
GRLF(s) is^ the^ average^ annual^ exponential^ growth^ rate^ of^ the number of persons in the labour force of sex s over the interval.
- Urban-rural level
This section will discuss a procedure that can be used to make an urban-rural projection of the labour force which is similar to that employed to make a national projection. The procedure consists of steps used to project the structures of labour force by age and sex along with those needed to derive a variety of other results.
(a) Labour force structures
Urban and rural structures of labour force for the end of a given projection interval (t to t+S) can be calculated using an urban-rural equivalent of the step described by equation (1):
LF(a,s,k,t+S) = POP(a,s,k,t+S) • LFPR(a,s,k,t+S);
a = 3, ... ,16;
s = 1,2;
where:
(23)
k = 1,
LF(a,s,k,t+S)
are urban and rural locations,
is the number of persons of age group a and sex s in location k in .the labour force at the end of the interval,
pOP(a,s,k,t+S) is the population of age group a and sex s in location k at the end of the interval. and
LFPR(a,s,k,t+S) is the labour force participation rate among persons of age group a and sex s in location k at the end of the interval.
- Types of inputs required
The following inputs are required to apply the labour force participation rate method:
(i) Projected age and sex structure of the population; (ii) Assumptions on labour force participation rates, by age and sex. Depending on whether one wishes to make a national projection or a projection for urban and rural areas, those inputs will be required for the nation as a whole or for urban and rural areas.
- Preparation of the inputs
The projected population structures can be prepared by making a population projection with the cohort component method (see module one, chapter II). Assumptions on labour force participation rates can be prepared as discussed below, relying among other things, on the observations of those rates.
(a) Observed labour force participation rates
In order to prepare assumptions on labour force participation rates, observations on these rates for a recent date or a few such dates are needed. These observations are needed in order to formulate assumptions for the initial year of the projection, which would normally be derived by extrapolating recent empirical rates. The extrapolation will reflect the planner's judgement regarding changes in the rates over the time interval prior to the initial year of the projection.
Where observations on labour force participation rates are not available, they can be derived from information on labour force and population, classified by age and sex. The data may come from population censuses, demographic surveys and/or other specialized surveys, such as labour force or employment surveys. Where data from two or more statistical sources are to be used, it is necessary to ensure that labour force information from different sources is based on the same definition of the labour force. Depending on the type of projection sought, the requisite data should be available at the national or urban-rural level.
(b) Assumptions on future labour force participation rates
To formulate assumptions on labour force participation rates for dates beyond the initial year of the projection, it is normally necessary to consider socio-economic and demographic changes expected to occur during the plan horizon and to estimate their effects on the participation rates. In
particular, as part of formulating assumptions on labour force participation rates for young-age persons of either sex, special attention needs to be paid to future trends in schooling. As school attendance is generally incompatible with participation in the labour force, future trends in proportions of children and adolescents enrolled in schools are likely to have a strong effect on the incidence of labour force participation among these groups. Assumptions on labour force participation rates at the upper end of the working-age span must reflect likely future changes in old-age security arrangements, both at the family and societal levels, since those arrangements are likely to have an important influence on withdrawal from the labour force at advanced years of age.
Assumptions concerning male and female labour force participation rates in the prime working ages are, typically, formulated differently from each other. In many countries male rates are assumed to remain fixed over time or are expected to change only slightly, since those rates are generally close to unity and show only minor variations over time. On the other hand, rates for females in the prime working ages are changing rapidly in many societies and so the assumptions must be based on a consideration of likely developments in areas such as childbearing and childrearing practices, female education, employment opportunities, household income and urbanization.
Developments in some areas will tend to raise and in others to reduce female participation rates. For example, if fertility is expected to decline over the plan horizon, female labour force participation may well increase. Similarly, where female schooling is expanding assumptions on the prime working-age female participation rates are likely to increase over time.
These rates may also be assumed to increase if employment is expanding rapidly, since improved employment opportunities are likely to draw an increasing number of women into the work force. On the other hand, an increase in household income can have a depressing effect on female participation rates, especially if the major source of the increase is the rising earnings of males. Under these conditions, the incentives for women to enter and/or remain in the labour market and contribute to household income may decline.
These developments and their effects on female labour force participation may not be the same at the national and at the urban-rural levels. Therefore, where the assumptions on female participation rates are formulated for a national projection, the effects of the expected trends in urbanization should also be taken into account. This is necessary wherever there are sizeable urban-rural differentials in female labour force participation rates. Thus, if participation in the labour force is more prevalent among rural women than urban women, and if rapid urbanization is likely to occur over the plan horizon as a result of the rapid employment expansion in the urban-based sectors of the economy, urbanization will tend to reduce the national female participation rates.
Table 33. Population^ structures^ at^ age^ 10 and over:^ entire^ country
(Thousands)
Year
Table 34. Labour force particapation rates: entire^ country Year
- group Age
- 10-14 624.0 729.9 729.3 815.6 917. Male
- 15-19 486.6 618.5 724.9 725.4 812.
- 20-24 402.2 481.5 613.4 720.1 721.
- 25-29 361.5 397.1 476.7 608.5 715.
- 30-34 358.7 355.9 392.2 472.0 603.
- 35-39 312.4 351.5 350.2 387.1 466.
- 40-44 223.6 303.6 343.4 343.5 381.
- 45-49 152.1 214.5 293.2 333.5 335.
- 50-54 192.5 142.8 203.2 279.9 320.
- 55-59 157.0 175.3 131.5 189.0 262.
- 60-64 128.1 136.3 154.4 117.4 170.
- 65-69 90.1 103.6 112.4 129.5 99.
- 70-74 44.2 65.9 77.7 86.2 101. - 75+ 38.6 45.6 63.0 81.4 99.
- 10-14 580.5 685.2 697.4 783. Female - 877.
- 15-19 448.3 574.9 680.2 693. - 779.
- 20-24 359.8 442.5 569.3 675. - 689.
- 25-29 348.3 354.5 437.5 564. - 670.
- 30-34 352.2 342.4 349.9 433.2 560.
- 35-39 300.9 345.1 337.0 345. - 428.
- 40-44 206.7 293.5 338.2 331. - 340.
- 45-49 158.5 200.2 285.7 330. - 325.
- 50-54 174.6 151.2 192.3 276. - 320.
- 55-59 164.0 162.2 141.9 181. - 262.
- 60-64 126.1 145.9 146.3 129. - 167.
- 65-69 105.6 105.1 124.0 126.4 113.
- 70-74 63.5 80.0 81.7 98.5 102. - 75+ 69.4 72.9 86.4 97.5 116.
- group Age
- 10-14 0.239 0.186 0.160 0.129 0. Male
- 15-19 0.492 0.447 0.386 0.344 0.
- 20-24 0.807 0.819 0.825 0.823 0.
- 25-29 0.929 0.923 0.928 0.930 0.
- 30-34 0.941 0.939 0.939 0.942 0.
- 35-39 0.933 0.933 0.935 0.937 0.
- 40-44 0.926 0.926 0.929 0.934 0.
- 45-49 0.912 0.915 0.919 0.922 0.
- 50-54 0.887 0.889 0.894 0.899 0.
- 55-59 0.837 0.834 0.835 0.835 0.
- 60-64 0.738 0.729 0.722' 0.723 0.
- 65-69 0.395 0.385 0.382 0.381 0.
- 70-74 0.099 0.102 0.098 0.103 0. - 75+ 0.049 0.049 0.043 0.043 0.
- 10-14 0.153 0.132 0.117 0.098 0. Female
- 15-19 0.344 0.334 0.319 0.313 0.
- 20-24 0.348 0.357 0.367 0.378 0.
- 25-29 0.357 0.375 0.392 0.409 0.
- 30-34 0.303 0.316 0.334 0.352 0.
- 35-39 0~247 0.257 0.267 0.283 0.
- 40-44 0.196 0.200 0.204 0.211 0.
- 45-49 0.145 0.149 0.154 0.158 0.
- 50-54 0.097 0.101 0.105 0.110 0.
- 55-59 0.077 0.080 0.081 0.082 0.
- 60-64 0.068 0.071 0.071 0.072 0.
- 65-69 0.065 0.067 0.062 0.062 0.
- 70-74 0.062 0.058 0.058 0.052 0. - 75+ 0.052 0.054 0.047 0.047 0.
