Frequently Asked Questions
The Better Jobs Index is a new tool for analyzing labor markets in Latin America. The index measures the state of employment in each country through two dimensions (quantity and quality), each consisting of two indicators. The quantity dimension captures how many people want to work (labor force participation) and how many actually do work (employment). The quality dimension measures how much of the work generated in a given country is registered in social security (formality) and how many workers receive wages that are sufficient to overcome poverty (living wage).
With the Better Jobs Index, the Inter-American Development Bank wants to offer countries a new instrument with which to monitor more effectively their employment conditions, facilitate comparisons between countries, and promote policies that can lead to more favorable employment conditions. Traditionally, the most used indicator for measuring the labor conditions in a country is the unemployment rate—that is, the number of people actively participating in the labor market who do not get a job. However, there are other factors that explain the functioning of the labor market, and this is what the Better Jobs Index seeks to measure.
The index is based on the data periodically published by countries of Latin America, which the IDB harmonizes through its Labor Markets and Social Security Information System (SIMS, for its acronym in Spanish). Thus, the Better Jobs Index allows for comparisons to be made between countries and the studying of how jobs have evolved in Latin America since 2010. It also provides information on the gaps between men and women, and between adults and youth.
Unfortunately, not all countries in Latin America and the Caribbean today have data rich enough to allow for their inclusion in the Better Jobs Index, according to the methodological document on which this tool is based. In the case of some countries (for example, in some Caribbean countries), the impossibility of determining one of the four indicators of the index prevents this index from being used. As these information gaps are closed, the number of countries that make up the index may increase
The data with which the Better Jobs Index is constructed comes from surveys that countries carry out and publish periodically, and which the IDB harmonizes through the Labor Markets and Social Security Information System (SIMS). The survey of households and employment requires considerable human and financial resources, which usually translates into a temporary difference of one to two years between execution and publication. For this reason, the latest data available in this first edition corresponds, in most cases, to the year 2015. To know the 2017 data, it will be necessary to wait for the second publication of the index, in 2019
In some countries, data is not available for all years in the period between 2010 and 2015. If, for example, there is no data corresponding to 2013 for a given country (because the survey was not carried out that year), the index duplicates the data from the previous year (2012). This information is specified, when this circumstance occurs, in the country notes (in the section dedicated to evolution in recent years).
Initially, the Better Jobs Index will be published every two years. The next update will be carried out in 2019. In any case, the data on the labor markets and social security of Latin American and Caribbean countries that the IDB makes available to the public through the SIMS (its acronym in Spanish) is updated every six months, in January and July.
Given that the index seeks to convey the evolution of countries over time and to compare employment conditions between countries, simple and existing indicators are needed in household surveys prepared by the countries of the region. The Better Jobs Index has two main dimensions: quantity and quality. Quantity refers to the extent to which people are connected to the labor market and the extent to which employment is available. Quality refers to the basic characteristics of people’s jobs. In turn, the indicators must be representative of the dimension being evaluated.
The labor indicators typically used (unemployment, labor participation, occupation, etc.) reflect an aspect of a country’s employment conditions. However, an indicator cannot capture the multiple characteristics of working conditions. The Better Jobs Index is a multidimensional index composed of two dimensions (four indicators) that show different nuances of the given labor market’s situation.
A multidimensional index captures the complexity of the labor market. For example, the unemployment rate, usually used as a labor market thermometer, is not sufficient to provide information about employment conditions and the policy measures necessary to improve them. The unemployment rate may be low, but this may be because the labor market context is so bad that many people have stopped looking for jobs due to discouragement. These discouraged workers leave the workforce and become inactive. Therefore, labor participation provides information that the unemployment rate alone cannot reveal. Also, the unemployment rate can be low because there are no public policies aimed at supporting the unemployed in the job search (such as unemployment insurance). In the absence of support to maintain income when employment is lacking, many people accept the first offer they find, even if it is not good; in many cases, they resort to informal jobs, low-productivity options, and low-income options. This is reflected in a low formality rate and a low percentage of jobs with sufficient salaries to get out of poverty (living wage). Thus, each indicator adds unique and useful information for the purpose of decision making. All this information is captured in the Better Jobs Index.
The Better Jobs Index is constructed from four indicators: a labor force indicator and an employment indicator, which make up the quantitative dimension; and a formality indicator and a living wage indicator related to overcoming poverty, which represent the qualitative dimension. These two dimensions and four indicators reflect some of the most salient aspects of employment. However, it should be noted that they do not cover all the elements of the labor conditions that could be relevant. Other possibilities include: safety in the workplace, skill development and professional development, non-standard forms of employment, and hiring rates and dismissals, to name a few. Unfortunately, the availability of data restricts the possibility of including additional variables while also allowing sufficient coverage across countries and over the years.
The four indicators are expressed in a positive way (a higher value is better) and are measured in relation to the working-age population. In this way, coherence between the indicators is achieved. For example, if one indicator improves, and the others remain the same, the index generally improves. There are no contradictions between indicators. In addition, an analysis of the information generated by each indicator (for technical details, see the methodological document) allows for determining whether the Index manages to summarize valuable information for each indicator and that each indicator adds unique information to the Index. In other words, each indicator contributes different information to the multidimensional Index.
The literature (see details in the methodological document) indicates that it is desirable for the dimensions of a multidimensional index to be considered equal in importance. The two dimensions of quantity and quality are equally important, so the weight for each dimension is one half. As for the indicators within a dimension, as there is no obvious reason to consider different weights, it is assumed that each one has the same weight. In summary, the general scheme of nested weighting implies weights of one quarter for each of the four indicators.
However, in the webpage of the index, users can modify the weights according to their own assessment of each of the indicators that make up the Index.
The four indicators are normalized by dividing them by the working-age population, excluding those who attend school full-time and are not working or seeking work. This allows for the aggregation of indicators in dimensions and dimensions within the Index. For more details, see the methodological document.
A job that offers a high enough wage is viewed as a higher quality job; one that pays too little is viewed as a lower quality job. A natural way of separating high from low is to set a specific cutoff in wage space. How is such a cutoff to be chosen? To be sure, a cutoff in wage space cannot be linked to a unique living standard for a family, as the latter depends on the characteristics of the family, such as the number of members and the number employed, and the length of the workweek.
Following an approach in the living wage literature, a reasonable wage cutoff can be calibrated with the help of a target living standard where the parameters are fixed to certain representative values. Anker (2011) suggests the use of four as the family size, 1.5 as the number of family members who are employed, and 48 hours as the workweek (the maximum workweek allowed by ILO conventions). Given a target living standard of $5 per person per day (2011 PPP) equivalent, which has been adopted as a poverty cutoff by the World Bank for the Latin America and Caribbean (LAC) region, a living wage can be immediately derived.
The living standard of $5 per day for each member of a family of four translates to an annual family requirement of $7300 equivalent. A worker who is employed for 48 hours a week for 52 weeks will work 2496 hours in all, so that 1.5 workers will put in 3744 hours. The resulting living wage cutoff would then be $7300 divided by 3744, or $1.95 equivalent per hour. A quick examination of the official minimum wages for 17 Latin American countries yields an average of about $2 (2011 PPP) equivalent per hour, which accords well with this rate. Thus $1.95 equivalent per hour is used as the living wage cutoff to determine the quality of a job. If the wage rate associated with this job is equal to or exceeds $1.95 equivalent per hour, we will say that the worker is in a job that pays a living wage.
For the Index, we define the working-age population as all 15-64 years old excluding persons who are fully enrolled in school and not working or looking for a job. The idea is that if a country is successful in ensuring that its older youth stay in school, it should not be penalized for this, and so, the Index’s definition of the working-age population more accurately reflects the pool of available workers. The traditional labor force participation metric, in which the “working-age population” denominator includes students, could be seen as having worse employment conditions if school retention and graduation policies are successful. This decision affects the magnitude of indicators because the denominator would be smaller in size, thereby raising the level of the indicator and the overall index. To the extent that different countries have different shares of the population attending school full time, it could also affect the relative rankings of countries with respect to the Index.
The Better Jobs Index offers, in a single value, useful information to analyze the evolution of employment conditions in a country and to facilitate comparisons between countries. In turn, the Index gathers valuable information for the design of public policy. In a world of limited resources (financial, human, time), it becomes valuable to prioritize interventions. If a country has values that are lower in terms of quantity compared to quality, it can use the quantity dimension to explore those factors affecting the low performance. Understanding the reasons for low performance in an indicator goes beyond the scope of the Index. However, the Index points to the direction in which the country should move to identify the cause and to propose policy measures to improve it. For example, if the low value of the index is due to low labor force participation, this allows the given country to prioritize resources to identify the causes of this performance, and the necessary measures to reverse it. There are several reasons why a person may not be part of the workforce. Cultural norms and other barriers can dissuade certain subpopulations from actively participating. For example, some traditional societies discourage female participation, thereby eliminating many potential workers from the labor force and reducing GDP growth. Some workers may be unable to participate in the labor market due to severe disabilities. Other potential workers may have tried to participate without success, thereby discouraging themselves and choosing to disengage from the labor market. A similar analysis can be made for the other three indicators of the index.
In all possible cases, the same survey has been used to calculate the performance of each country in the Better Jobs Index from 2010 to 2015 (the last year available in most countries). However, in the case of Nicaragua, there was a change in the source of the data, which may partly explain why the country went from obtaining 83.9 points in the quantity dimension in 2013 to 72.6 two years later. This result can be explained by the fact that, between 2010 and 2012, the data on Nicaragua came from the Continuous Household Survey, whereas, since 2014, the data has come from the Living Standards Measurement Study (LSMS). Something similar has happened in Panama, where the 2010 data came from the Household Survey, whereas, between 2011 and 2015, the information was extracted from the Multiple Purpose Survey.