KILM 13. Inactivity

Although labour market economists tend to focus on the activities and characteristics of people in the labour force, there has been continued, if less visible, interest in individuals outside of the labour market, especially those who want to work but are not currently seeking work. Much of this growing interest stems from concern over improving the availability of decent and productive employment opportunities in developing and developed economies alike. Individuals are considered to be outside the labour force, or inactive, if they are neither employed nor unemployed, that is, not actively seeking work. There are a variety of reasons why some individuals do not participate in the labour force; such persons may be occupied in caring for family members; they may be retired, sick or disabled or attending school; they may believe no jobs are available; or they may simply not want to work.

In some situations, a high inactivity rate for certain population groups should not necessarily be viewed as “bad”; for instance, a relatively high inactivity rate for women aged 25 to 34 years may be due to their leaving the labour force to attend to family responsibilities such as childbearing and childcare. Using the data in KILM 13, users can investigate the extent to which motherhood relates to the labour force patterns of women. It has long been recognized that aspects of household structure are associated with labour market activity. For example, female heads of households tend to have relatively high inactivity rates. Among married-couple families, husbands typically have low inactivity rates, especially if there are children in the family. However, a low rate of female inactivity could coincide with a high rate for men, i.e. the husband, if the male is completing his education or is physically unable to work, thus making the wife the primary wage earner.

A subgroup of the inactive labour force comprises those known as discouraged workers, defined as persons not in the labour force, who are available for work but no longer looking for work because they think they will not find any. This is typically for personal reasons associated with their perception of lack of job availability. Regardless of their reasons for being discouraged, these potential workers are generally considered underutilized. The presence of discouraged workers is implied if the measured labour force grows when unemployment is falling (although demographic pressures should also be taken into consideration). People who were not counted as unemployed (because they were not actively searching for work) when there were few jobs to be had may change their mind and look for work when the odds of finding a job improve. Furthermore, when numbers of discouraged workers are high, policy-makers may attempt to “recapture” members of this group by improving job placement services. (See discussion on “discouragement” also in KILM 10.)

There are several aspects of the definition to consider for the inactivity indicator. Foremost is the fact that estimates must be made for the entire population, either through labour force surveys, population censuses, or similar means. Typically, determinations are made as to the labour force status of the relevant population. The labour force is defined as the sum of the employed and the unemployed. The remainder of the population is the number of persons not in the labour force.

Only labour force participation rates and population figures deemed sufficiently comparable across countries were used in the construction of table 13.1 To this end, only labour force survey and population census-based data were used in the construction of the estimates. In countries with more than one survey source, only one type of source was used. If a labour force survey was available for the country, inactivity rates derived from these were chosen in favour of those derived from a population census. Only inactivity rates that are sufficiently representative of the standardized age groups (15+, 15-24, 15-64, 25-54, 25-34, 35-54, 55-64 and 65+) were used in the construction of the series.

Table 13 includes both real (country reported) inactivity rates as well as rates that were imputed using econometric modelling techniques. GDP levels and growth rates, population age structure variables and dummy variables to capture time trends, region-specific trends and country fixed effects were among the explanatory variables used to generate the imputed labour force participation rates in KILM table 1a, which were then used in the construction of table 13. These rates were estimated separately both for each age group as well as for the sexes.

The usual comparability issues stemming from differences in concepts and methodologies according to types of survey, variations in age groups, geographic coverage, etc., do not apply in the case of table 13. The table is derived from the harmonized labour force participation rates in table 1a, where only data deemed sufficiently comparable across countries were used, which makes table 13 harmonized (and comparable) by default. The selection criteria for creating the harmonized data set were explained in the previous section.

Figure 13a presents the normal distribution of inactivity rates of persons aged 25 to 54 years across 189 countries, for men and women in 2010. The steepness and narrowness of the curve for men reflects the small variation across the countries when it comes to male inactivity. In most countries of the world, the male inactivity rate remains close to the low average of 7 per cent. For women, in contrast, the factors which influence the decision to participate in labour markets are numerous and complex, and there is much greater variation across countries around the average inactivity rate for prime-age females of 32 per cent. The highest rates for women were mostly found in North African and Middle Eastern economies where inactivity rates usually exceeded 50 per cent. For instance, more than 70 per cent of the female prime working-age population was economically inactive in Afghanistan, Algeria, Egypt, Islamic Republic of Iran, Iraq, Jordan, Lebanon, Morocco, Pakistan, Saudi Arabia, Syrian Arab Republic, the Occupied Palestinian Territories and Yemen, indicating that many women were probably underutilized in these economies due to constraints by social institutions such as laws, norms, codes of conduct and traditions. Given the high rates among women, total inactivity rates (men and women combined) among these economies were also comparatively high.

Figure 13a. Normal distribution of inactivity rates of female and male population aged 25 to 54 years189 countries, 2010

Figure 13a. Normal distribution of inactivity rates of female and male population aged 25 to 54 years189 countries, 2010

Over the past ten years, there have been noticeable changes in inactivity rates of the total working-age population (aged 15 years and over) for many economies. These changes were mostly driven by changes in the inactivity rates of prime-aged females and to a lesser extent that of youth. Generally, rates for prime-aged males were stable (most economies had changes of less than 5.0 percentage points). Significant increases, however, were often noted for recent European Union members and countries in Central & South-Eastern Europe (non-EU) & CIS, due to rising inactivity rates for both men and women. Many of the largest declines in inactivity rates occurred in South American countries, due to falling inactivity rates for women and youth. Figures 13b shows the changes in inactivity rate between 2000 and 2010 for the prime working-age female population, It confirms the expected decline in female economic inactivity for the majority of economies over time (146 out of 189). The increase in South Asia is due to the 2010 decrease in the overall labour force participation of India which resulted in an increase of female inactivity rate of about 5.3 percentage points as compared to 2000.

Figure 13b. Percentage point change in the inactivity rates of the female population aged 25 to 54 years, by region, 2000-10

Figure 13b. Percentage point change in the inactivity rates of the female population aged 25 to 54 years, by region, 2000-1

Note: Regional averages are unweighted sums of available data by region.

Figure 13c illustrates an upward trend in youth inactivity rates across all regions (the youth rates increased between 2000 and 2010 in 132 out of 189 countries). The most notable increases were in the regions of Developed Economies & European Union, East and South Asia and the Middle East. The increasing inactivity of youth is typically attributed to one of two factors: first, education, meaning more young people are enrolling in education as an alternative to entering the labour force and more young people are staying in the education system for longer periods of time; or second, increased discouragement, i.e. the assumption that more young people are neither working nor looking for work because they feel “discouraged” (in the belief that there are not any jobs out there or that there are no jobs out there that are worth having). In the Developed Economies & European Union, the youth inactivity rate increased by 2.4 percentage points over the course of the Great Recession (2008 to 2010).2

Although increasing over time, youth inactivity rates remain significantly lower in many low-income economies of the world than in higher-income economies. The 2010 rate in sub-Saharan Africa was 46.4 per cent compared to 52.5 per cent in the Developed Economies & European Union. The assumption has always been that, in low-income economies, young people do not have the option of staying in education due to lack of education infrastructure or education fees, and also because the opportunity costs of doing so are too high. It does not always pay off to stay in school. Young people must take on any job in order to maintain a subsistence level of support for themselves and their families. Labour force participation of young people in these regions is not a matter of choice, but necessity. Discouragement is typically not an option. Instead of focusing on declining participation rates (and increasing inactivity rates), therefore, it would be more revealing to focus on what type of activities young people in low-income economies are engaged in and under what conditions.

Figure 13c. Inactivity rates of the young population aged 15 to 24 years, 2000-10

Figure 13c. Inactivity rates of the young population aged 15 to 24 years, 2000-10

Regional averages are unweighted sums of available data by region.

Note: Regional averages are unweighted sums of available data by region.