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International Futures Help System

Labor Supply

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.

We can compute 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).

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Change in the retirement age is introduced through a multiplicative parameter (labretagem).

The participation of women in the work force (FEMSHRLAB) is assumed to grow over time with an exogenous parameter based on past experience (femshrgr). The growth is, however, 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).

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Given the three drivers of labor force participation rates (LAPOPR) it is possible to compute it:

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The product of participation rate and population provides the total labor pool (LAB).

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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 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).

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Labor by household type (LABSUP) is determined by calculation of the percentage which comes from skilled households (PerSkilled). That changes over time with GDP per capita at PPP (GDPPCP), but is modified by a skilled labor adjustment factor (LabSupSkiAdj) that takes into account initial conditions for each country and simultaneously allows that adjustment to change as the years of education obtained by those over 25 (EDYEARS25) changes in the country.

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The unskilled labor is computed as a residual.

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