A common challenge in making people understand economic policies is their ability to interpret the data. Labor market policies are no different from that. Understanding labor market data, such as unemployment, underemployment, labor force participation rate, jobs gap, NEET (Not in Education, Employment, or Training) population, and unpaid work, is essential due to their conceptual complexity and statistical importance.
The unemployment rate does not accurately measure labor market performance in developing or least-developed countries. In economies dominated by informal employment, many types of work are considered employment, and it is not very difficult to find work for at least an hour a week.
A person in employment, as defined by the International Labour Office (ILO), is a person aged 15 or over who has done at least one hour’s paid work in a given week or who is absent from work for certain reasons (annual leave, sickness, maternity, etc.) and a certain period.
Policymakers and citizens should recognize that underemployment, the NEET population, an inactive workforce, and own-account workers are better indicators of labor market performance in developing countries. However, politicians often highlight unemployment to showcase their regimes’ successes.
What do we mean by underemployed or underutilized workers? ILO defines time-related underemployment as employed individuals who, during a short reference period, wanted to work additional hours, worked less than a specified hours threshold, and were available to work additional hours.
For instance, in 2023, Bangladesh had an estimated 2.59 million unemployed individuals, with the unemployment rate at 3.51%. Additionally, 6.26 million working-age people were underutilized. The underutilized or underemployed population is almost double the unemployed population.
What does NEET signify in the labor market? A ‘high NEET rate’ means many young people (15-29) are not in employment, education, or training. This signifies disengagement from the labor market and society, highlighting youth vulnerability and economic inactivity.
If anyone observes Bangladesh’s NEET youth, they are around 30%, largely influenced by females. According to ILOSTAT, the labor force participation rate stands at 49.5%. Alarmingly, the NEET rate has reached 30.9%.
“Out of the labor force” is another strong indicator of a country’s labor market performance, which is more important in a developing country. It is a residual category that includes people who do not comply with the requirements for being considered employed or all of those required to be considered unemployed.
It includes persons who do not want a job, discouraged workers, and persons who are not currently available to work and are searching for a job but took their last active step a long time ago.
Historically, in Bangladesh, about 40% to 50% of the working-age population remains under this category, meaning that half of the country’s working-age population is basically inactive and doing nothing. The biggest risk of being inactive for a long time is withdrawal from economic activity, which results in ‘discouraged workers’.
Discouraged workers are persons who are without work and available for work but did not actively seek work because they felt that no work would be available to them. Therefore, they could not be classified as unemployed.
Several pieces of labor market literature provide empirical evidence that youth who remain in NEET and remain inactive in the economy gradually become discouraged workers. Their lack of motivation to be active in the economy increases their chances of getting involved in crimes and anti-social activities.
To understand job quality, key indicators include ‘own account workers,’ ‘self-employed,’ and ‘real wage.’ According to ILO, own-account workers are those who work on their account or with one or more partners, hold self-employment jobs and do not engage employees continuously. Self-employed is a broad category encompassing individuals who work for themselves, run their businesses, or engage in freelance work.
Anyone can check the numbers of these indicators in Bangladesh, compare them with some of the countries in Asia and the Pacific region, and understand how the country is doing in terms of reducing vulnerable employment by increasing decent work opportunities.
Assessing the country’s wage situation is crucial to focusing on poverty, equality, and income of employed people. The ILO defines real wages as the purchasing power of money for specific goods and services, calculated by adjusting nominal wages for changes in the cost of living, typically using a national price index like the consumer price index.
One indicator, labor productivity, compared with real wages, is useful for understanding how workers in a country are being exploited and facing the ‘low wage trap.’ Below is a table showing Bangladesh’s case.
The table above clearly depicts that in Bangladesh, most sectors and subsectors have more or less positive labor productivity growth rates. Meanwhile, the real wage growth rate has been negative. This shows that the economic theory of setting the wage to equal to marginal productivity certainly does not work.
A more important narrative from this table is that even though the workers produce positive economic outputs, their real wages are declining. This raises a crucial policy question about setting wages right.
Many policy questions, labor market regulation, and institutional capacity building will largely depend on correctly understanding labor market data and indicators and prioritizing them better. The politics of data and statistics often offset the real problem; rather, it reflects the easy and quick wins.
It is high time that Bangladesh starts establishing an integrated labor market information system (LMIS) and data literacy programs for understanding and utilizing labor market data. This is more important than ever after the country experienced a political upsurge driven by the labor market conditions of youth unemployment and equal opportunity for youth in employment.
Nazmul Avi Hossain, Labour Economist, currently working for ILO
