Labor supply (LAB) is a function of population, depending on a labor force participation rate (LAPOPR). In earlier versions of IFs that participation rate was an exogenous parameter. It has now been decomposed into three elements: (1) the share of the population in the traditional working ages between 15 and 65, (2) the retirement age, and (3) the participation rate of women.
At one time we computed the share of population in the traditional working ages as a ratio of the size of the population in that age category (POP15TO65) and population (POP).
Although the name of the variable has not been changed yet, the formulation has now been changed in order to represent variable ages of entry into the work force ( workageentry ) and retirement age ( workageretire ) across countries and time. Those parameters are used to compute an actual working aged population (POPWORKING) or potential labor force in an algorithm across population age categories in the population model.
The participation of women in the work force (FEMSHRLAB) as a share of the total labor force is assumed to grow over time with an exogenous parameter based on past experience ( femshrgr ); the representation of women as a share of the labor force rather than in terms of percentage points of their participation somewhat complicates the equations below. The growth in labor-force share is modified by a multiplier (FemShrLabMul) that introduces saturation as female participation rates approach a target (FemShrTar). The model user can modify that target, normally between 50 and 60% via an exogenous parameter ( labfemshrm ).
Given the three drivers of labor force participation rates (LAPOPR) it is possible to compute it relative to the rate in the first year:
Change in the retirement age can be reflected in the above equation via a multiplicative parameter ( labretagem ), but it does not give the precision of control that workageretire does and is no longer recommended for use. The multiplier on participation rate ( lapoprm ) is, however, a useful scenario intervention point.
The product of participation rate and population provides the total labor pool (LAB).
The total labor pool can be divided into subcomponents in two different ways. First, labor is spread across production sectors (LABS). Second, it is differentiated by household type in to skilled and unskilled labor (LABSUP).
Labor Supply by Sector
Labor by sector of the economy (LABS) is a share of the total labor force (LAB) minus unemployment calculated at an exogenous unemployment rate (UNEMPR). The sectoral share is calculated in a function that estimates the labor demand for each unit of value added (VADD) at given levels of GDP per capita (GDPPC).
Labor Supply by Household Skill Category
Labor by household type (LABSUP) is determined by calculation of the percentage that comes from skilled households (PerSkilled). At the core of that calculation of percent skilled is an analytical function with GDP per capita at PPP (GDPPCP). But the analytical function is fundamentally tied to conditions that prevail in the contemporary era (as captured by the GTAP data on which it is based). We know that education levels have been increasing, even to the extent of involving some credential inflation. Thus the percentage of the labor force considered skilled is likely to increase faster than the function indicates. Thus it is modified by a skilled labor adjustment factor (LabSupSkiAdj) that takes into account the difference between the actual extent of education among adults over 15 (EDYEARS15) and the expected level and translated that into a boost or reduction in the percentage skilled in the same manner that differences between actual and expected years affect MFP in the production function. The YearsEdDiff term simply maintains the difference by country/region of the initial (year 2) difference between the expected years from the function and the actual years of education.
The unskilled labor is computed as a residual.