Lecture 8
Wages, productivity, and income distribution
Why employment matters:
- Impacts directly on standard of living (via income)
- Important development indicator
- Very important economic performance criteria
- Objectives of macroeconomic polocy:
o Economic growth
o Full employment
o Price stability
o Balance of payments stability
o Equitable income distribution
Capturing unemployment data:
- Stats SA → official collector of (un)employment data
o Not particularly accurate or reliable due to survey issues (sampling and
non-sampling errors)
o Sampling error → a sample, rather than the entire population, is surveyed,
there is a chance that the sample estimates may differ from the true
population values they represent.
o Non-sampling error → failure to sample a segment of the population,
inability to obtain information for all respondents in the sample, inability or
unwillingness of respondents to provide correct information on a timely
basis, mistakes made by respondents, and errors made in the collection or
processing of the data.
- Latest unemployment rate:
o Q2 2021 = 34.4%
- Latest population estimate:
o Mid-2021 = 60.14 million
o Population estimates are difficult to do capture
▪ Illegal immigrants for example
Definitions:
- Population of working age:
o Everyone in SA between the ages of 15 and 64
o Everyone who should be working based on age → everyone who could be
employeable based on their age
o Includes home engineers (house wifes/house husbands), students, learners
& physically disabled
o Population of working age → Q2 2021 = 39.6 million
▪ 60.14 – 39.6 = people below 15 and over 64 years old
Notes can only be purchased through the following details:
or 0829369077 1
, - Labour force / EAP (economically active people):
o Everyone aged 15-64 who is willing and able to work
o Sum of employed and unemployed persons → workers in formal sector +
workers in informal sector + self-employed + unemployed
o Excludes:
▪ Home engineers, students, learners and physically disabled → i.e. the
not economically active population
▪ Discouraged job seekers
o EAP → Q2 2021 = 22.8 million
o EAP depends on:
▪ Age distribution of population
• Young working-age population = large EAP
▪ Social security
• Increase in social secrity = reduce EAP
▪ Women’s role in society
▪ Availability of child care
▪ Number of immigrants (net migrants)
▪ Level of development and structure of economy
▪ Education attained by working age population
▪ Health (e.g HIV infection rate)
o NEA → not economunaly active/not in the labour force
- Labour force participation rate (LFPR) → percentage of those of the correct age
that are willing and able to work
labour force
o LFPR = * 100
working age population
- Labour absorption rate (LAR) → percentage of those of the correct age that are
employed
employed
o LAR = working age population
* 100
- Employment coefficient → degree of responsiveness of employment to economic
growth (“production elasticity of employment”)
%∆ employment
o Employment Coefficient = %∆ GDP
* 100 (over > 5 years) = 0.975 for
1998 – 2014
▪ A 1% increase in GDP increases employment by 0.975% →
employment grows slower than GDP
• Would want the coefficient to be greater than 1% (want
employment to grow faster than GDP)
- Labour absorption capacity (LAC) → percentage of new entrants (willing and
able to work) that are able to find employment
increase in employment
o Marginal LAC = increase in EAP
* 100 = 96.76 for 2003 – 2008 AND
= 52.70 for 2009 – 2014
▪ Capacity of economy to increase employment if economically
active population increases
- LAR vs LAC
o LAC → marginal concept
▪ Uses EAP
o LAR → average concept
▪ Uses working age population
Notes can only be purchased through the following details:
or 0829369077 2
Wages, productivity, and income distribution
Why employment matters:
- Impacts directly on standard of living (via income)
- Important development indicator
- Very important economic performance criteria
- Objectives of macroeconomic polocy:
o Economic growth
o Full employment
o Price stability
o Balance of payments stability
o Equitable income distribution
Capturing unemployment data:
- Stats SA → official collector of (un)employment data
o Not particularly accurate or reliable due to survey issues (sampling and
non-sampling errors)
o Sampling error → a sample, rather than the entire population, is surveyed,
there is a chance that the sample estimates may differ from the true
population values they represent.
o Non-sampling error → failure to sample a segment of the population,
inability to obtain information for all respondents in the sample, inability or
unwillingness of respondents to provide correct information on a timely
basis, mistakes made by respondents, and errors made in the collection or
processing of the data.
- Latest unemployment rate:
o Q2 2021 = 34.4%
- Latest population estimate:
o Mid-2021 = 60.14 million
o Population estimates are difficult to do capture
▪ Illegal immigrants for example
Definitions:
- Population of working age:
o Everyone in SA between the ages of 15 and 64
o Everyone who should be working based on age → everyone who could be
employeable based on their age
o Includes home engineers (house wifes/house husbands), students, learners
& physically disabled
o Population of working age → Q2 2021 = 39.6 million
▪ 60.14 – 39.6 = people below 15 and over 64 years old
Notes can only be purchased through the following details:
or 0829369077 1
, - Labour force / EAP (economically active people):
o Everyone aged 15-64 who is willing and able to work
o Sum of employed and unemployed persons → workers in formal sector +
workers in informal sector + self-employed + unemployed
o Excludes:
▪ Home engineers, students, learners and physically disabled → i.e. the
not economically active population
▪ Discouraged job seekers
o EAP → Q2 2021 = 22.8 million
o EAP depends on:
▪ Age distribution of population
• Young working-age population = large EAP
▪ Social security
• Increase in social secrity = reduce EAP
▪ Women’s role in society
▪ Availability of child care
▪ Number of immigrants (net migrants)
▪ Level of development and structure of economy
▪ Education attained by working age population
▪ Health (e.g HIV infection rate)
o NEA → not economunaly active/not in the labour force
- Labour force participation rate (LFPR) → percentage of those of the correct age
that are willing and able to work
labour force
o LFPR = * 100
working age population
- Labour absorption rate (LAR) → percentage of those of the correct age that are
employed
employed
o LAR = working age population
* 100
- Employment coefficient → degree of responsiveness of employment to economic
growth (“production elasticity of employment”)
%∆ employment
o Employment Coefficient = %∆ GDP
* 100 (over > 5 years) = 0.975 for
1998 – 2014
▪ A 1% increase in GDP increases employment by 0.975% →
employment grows slower than GDP
• Would want the coefficient to be greater than 1% (want
employment to grow faster than GDP)
- Labour absorption capacity (LAC) → percentage of new entrants (willing and
able to work) that are able to find employment
increase in employment
o Marginal LAC = increase in EAP
* 100 = 96.76 for 2003 – 2008 AND
= 52.70 for 2009 – 2014
▪ Capacity of economy to increase employment if economically
active population increases
- LAR vs LAC
o LAC → marginal concept
▪ Uses EAP
o LAR → average concept
▪ Uses working age population
Notes can only be purchased through the following details:
or 0829369077 2
