World of Work Report 2013 - International Labour Organization

In emerging and developing countries, the share of informal employment
remains high, standing at more than 40 per cent in two-thirds of such countries
for which data are available.16
In an effort to derive a single indicator for job quality performance, a principal
component analysis (PCA)17 was undertaken. In advanced economies the
change in the percentage of temporary employees,18 the change in social benefits
expenditure as share of total public expenditure and the growth in the average
hourly wages between 2007 and 2011 were used. In the case of emerging and
developing economies, the growth in average real wages (between 2007 and 2011)
and the change in the incidence of informal employment between the pre-crisis
and the crisis period were used.
In advanced economies, this job quality indicator is positively correlated to
average hourly earnings and social expenditure as a share of public benefits and
negatively correlated to the percentage of temporary employees.19 In the case of
emerging and developing economies, the job quality indicator is positively correlated
to the growth in real wages and negatively correlated to the change in the incidence
of informal employment.20 Therefore, a country with a higher score for this
indicator can be identified with a good performance in terms of job quality. Likewise,
labour market performance in both advanced and emerging and developing
economies is defi ned by combining three labour market indicators, namely the
average annual growth in employment between 2007 and 2011 and the changes in
unemployment and labour force participation rates during the same period. This
composite indicator for labour market performance21 is positively correlated to the
change in employment and labour market participation rate and negatively correlated
to the change in unemployment rate. Thus, a higher score of this indicator
means a good labour market performance.
Figure 1.5 illustrates that the change in labour market performance is negatively
related to the change in job quality performance between 2007 and 2011
12
16. ILO (2012).
17. Principal component analysis (PCA) is a mathematical procedure that transforms a number of
correlated variables into a smaller number of uncorrelated variables called principal components,
where each component is a linear weighted combination of the original variables.
18. One dimension of job quality considers the contractual status and stability of employment,
i.e. standard and non-standard jobs in advanced economies or formal and informal employment in
developing economies. Temporary employment is a type of non-standard employment. Nevertheless,
a high incidence of temporary employment per se is not problematic if accepted voluntarily. A
second dimension of job quality examines the willingness of temporary workers to remain in their
job, i.e. involuntary temporary employment, defi ned as those workers who are engaged in temporary
employment because they cannot fi nd permanent jobs. However, only the percentage of temporary
employees has been taken into account in the analysis because data on involuntary temporary
employment are only available for European countries.
19. The weights used to derive the composite indicator are the factor loadings on the fi rst component
of the PCA. The fi rst component explains 55 per cent of the common variance across the indicators.
Component loadings for the three variables (average hourly wages, public expenditure in social benefits
and percentage of temporary employees) in component 1 are 0.65, 0.48 and -0.60, respectively.
20. The weights used to derive the composite indicator are the factor loadings on the fi rst component
of the PCA. The fi rst component explains 75 per cent of the common variance across the indicators.
Component loadings for the two variables (average real wages and informal employment as
percentage of total non-agricultural employment) in component 1 are 0.71 and -0.70, respectively.
21. The weights used to derive this labour market performance indicator are the factor loadings
on the fi rst component of the PCA. The fi rst component explains 70 per cent and 60 per cent of
the common variance across the indicators in the case of advanced and emerging and developing
economies, respectively. Component loadings for the three variables (employment, unemployment
rate and labour participation rate) in component 1 are 0.67, -0.60 and 0.43, respectively, in the case
of advanced economies; and 0.68, -0.36 and 0.64, respectively, in the case of emerging and developing
economies.
World of Work Report 2013: Repairing the economic and social fabric