Employment Sector

Purpose and Perspective

The Employment sector represents how economic activity creates employment. Growth in agricultural land for agriculture, and capital accumulation for industry and services production are considered the major forces driving the growth of labor demand. Technological advancement, on the contrary, tends to decrease labor demand, under the assumption that more technologically advanced processes require less labor per unit of capital. In the case of agriculture, greater capital per hectare tends to increase the land-labor ratio and reduce agricultural employment. Employment levels tend to adjust over time to labor demand, unless the labor supply is insufficient to satisfy demand.

Since iSDG is long-term oriented (rather than short-term), the employment algorithm used is driven by capital and years of schooling, a proxy for the level of technology that can be implemented by firms.

Model Structure and Major Assumptions

  • Agriculture employment depends on the amount of agriculture land, productive capital per hectare, and technology [1]

  • Industry and services employment levels depend on the amount of productive capital and current levels of technology [2]

Exogenous Input Variables

  • Average Salary In The Public Sector - Units: LCU [3]/Person/Year

  • Labor Participation Rate - Units: Dmnl

Initialization Variables

  • Initial Employment by sector - Units: Person

  • Initial Agriculture Land Labor Imbalance by sector - Units: dmnl

  • Initial Capital Labor Imbalance by sector - Units: dmnl

  • Initial employment gender gap by sex – Units: Dmnl

  • Initial proportion of female legislators senior officials and managers – Units: Dmnl

Modeling Details

To determine employment levels, labor demand from all sectors is calculated first, and then it is assumed employment is adjusted to labor demand, unless labor supply is insufficient to cover demand. To determine labor demand, the indicated capital labor ratio (land labor ratio for agriculture) is determined first, that is the optimal capital labor ratio sought by producers. The indicated capital labor ratio increases as technology increases, as production processes become more automated and require less labor per unit of capital, and is affected by the level of education of the population.

Agriculture is generally more labor-intensive. At a given technological and capital intensity levels, employment depends on the amount of agricultural land in production. Differently from the other sectors, employment in this sector is negatively affected by increases in capital, unless agriculture land also expands at the same rate. If agriculture land land does not expand but capital does, the increase in capital intensity leads to greater mechanization and thus to a reduction in employment. Agriculture is also often a sector that absorbs excess labor supply (often through self-employment); hence we include the effect of labor force pressure on the land labor ratio and consequently agriculture employment.

Footnotes and References

[1] Agwu, N.M., Nwankwo, E.E., & Anyanwu, C.I. (2014). Determnants of agricultural labour participation among youths in ABIA State, Nigeria. International Journal of Food and Agricultural Economics, 2, 1: 157-164.

[2] Driver, C., & Temple, P. (1999). Overview: Investment, feedback and spillover. In Investment, Growth, and Employment: Perspectives for Policy. London: Routledge.

[3] Local currency unit