IN THE PAST FEW YEARS there has been an increasing concern about the present and prospective inadequacy of employment opportunities in developing countries. It emanates partly from a retrospective view of the course of events in the years since the end of World War II. The economic performance of the developing countries in this period as measured by their rate of economic growth has, by historical standards, been quite creditable, and yet their predicament with regard to the employment problem apparently has been getting progressively worse. Dissatisfaction with the past and disquiet about the future are serious enough to raise doubts regarding the whole present orientation of economic policy in developing countries and have resulted in a channeling of research efforts to employment issues. There is also increasing emphasis on employment as an objective of economic policy in the developing countries, and it appears that emphasis on employment issues will continue in the future. This paper surveys some of the recent work pertaining to this general subject and alludes to some general implications for economic policy directed toward these problems.
The paper is in five parts. Section I presents data about recent labor-force trends in the developing countries, puts them in a historical perspective, and points to the crucial role of population growth in shaping the employment problem of the developing countries. Section II discusses briefly the conceptual difficulties in coming to grips with the problem and suggests that it has two components—open unemployment and disguised unemployment. Section III, dealing with open unemployment, cites some of the available quantitative information, an exercise that is not possible in Section IV, which is about disguised unemployment. In fact, much of Section IV is concerned with the most appropriate definition of disguised unemployment, with the final choice leaning toward a definition based on an income test. The choice of an appropriate definition is of interest because of its unavoidable influence in determining the focus of economic policy in its approach to the problem. Finally, Section V summarizes the main conclusions regarding the overall approach of economic policy to the employment problem in the developing countries.
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Turnham, David (with the assistance of I. Jaeger), The Employment Problem in Less Developed Countries (Organization for Economic Cooperation and Development, Development Center, Paris, June 1970).
United Nations, Economic and Social Council, Committee for Development Planning, Measuring the Adequacy of Employment in Developing Countries (mimeographed, E/AC.54/L.44, January 4, 1972), prepared by the International Labor Office.
Mr. Bhagwat, Senior Economist in the Stabilization Policies Division of the Exchange and Trade Relations Department, is a graduate of the University of Bombay and of Yale University. He formerly taught at the University of Pennsylvania (Philadelphia).
Used synonymously with labor force.
Excluding countries that are members of the Council for Mutual Economic Assistance, mainland China, North Korea, and North Viet-Nam.
Developed countries in Europe.
See Turnham , Appendix A, pp. 175-90, for a discussion of the historical experience of employment problems. Numbers in square brackets refer to items listed in the Bibliography, pp. 98-99.
This flat statement is too simplistic. In fact, there are, of course, considerable dissimilarities within the developing countries. At one end of the spectrum are some countries in which agriculture typically absorbs a relatively small portion (30-40 per cent) of the labor force and in which a substantial part of the economic activity takes place in a labor-market environment similar to that in the developed countries. To them the usual framework is, on balance, relevant. At the other end of the spectrum there are countries whose economies are almost entirely traditional, the modern sector being small and largely unintegrated with the rest of the economy. To such economies, the “unemployment” framework does not apply at all. However, notwithstanding these dissimilarities within the developing countries, the dichotomy with the developed countries drawn in the text is a useful one. The insight that it provides substantially outweighs the violence it does to reality.
See Turnham , Chapter II, pp. 21-46, and the report by the Indian Committee of Experts , Chapters III and V, pp. 14-29, for further discussion. Both Turnham and, implicitly, the Indian Committee arrive at similar conclusions. Even Myrdal, after his severe and effective criticism of the usual conceptual apparatus , Chapter 21, Vol. II, pp. 961-1027), retains the participation rate concept. However, it is fitted into a different overall framework that excludes the unemployment rate concept.
These points will be intuitively convincing to most people with firsthand experience in developing countries. For their extensive validation, see Myrdal , Appendix 16, Vol. III, pp. 2203-21, and the report by the Indian Committee , especially Appendix I, pp. 33-41. See Ridker and Lubell , Chapter 2 (especially p. 11), for instances of extreme variations in reported unemployment rates that are attributable mainly to unavoidable methodological problems and that emphasize the need for extreme caution in using such data.
In developing countries as a whole, roughly 70 per cent of the labor force is estimated to be in agriculture, and those in paid employment generally account for less than 10 per cent. However, these proportions vary substantially from country to country.
The Year Book of Labour Statistics  presents four types of unemployment statistics: (a) labor-force sample surveys; (b) compulsory unemployment insurance statistics; (c) statistics of trade union benefit funds; and (d) employment office statistics. The Year Book for 1971 includes series for the general level of unemployment for 37 developing countries that are members of the International Monetary Fund. Of these, data for 10 countries are based on labor-force sample surveys and the remainder are employment office statistics. It is now well established that employment office statistics in developing countries are not usable as reliable indices of unemployment. There are several reasons for this, including the absence of any identifiable relationship between the number of registrants and the number of unemployed, as the number of registrants is influenced by such factors as the location and number of employment offices, how widely their existence is known, their effectiveness as employment exchanges for different categories of labor, and the literacy and knowledgeability of the unemployed. Furthermore, registrations often include people who are employed but desire another or a better job; and there can also be double counting because the same person has registered at different offices. Hence, Table 2 includes only the series that are based on sample surveys; similar data for five selected developed countries are also included as a basis for comparison. Generally, a well-designed and well-executed labor-force sample survey can be expected to yield reliable estimates of open unemployment.
Compared with the paucity of time series. Table 2 just about exhausts time-series data on national open unemployment rates.
The rural migrants do not necessarily join the unemployed pool directly but may be initially absorbed in the urban traditional sector. In fact, there is some evidence that the incidence of open unemployment among the rural migrants is proportionately less, perhaps because they can afford it less. If so, the unemployed pool may be replenished mainly by the urbanites. All this, however, does not alter the essential nature of the process sketched in the text.
See Todaro  for a rigorous formulation of this hypothesis. Todaro assumes that the percentage change in the urban labor force as a result of migration during any period is governed by the differential between the discounted streams of expected urban and rural real income expressed as a percentage of the discounted stream of expected rural real income.
However, there is some presumption that given the constraint of available real and financial resources, a policy that moderates the rural/urban real wage differential would also make possible the creation of more jobs in the modern sector.
There is as yet no established terminology in this area, and some writers prefer the term “underemployment” to “disguised unemployment.” Both alternatives have been used widely and have been given interpretations of varying degrees of precision. The underemployment usage focuses attention on the distinction between those who are wholly unemployed and those who are only partly unemployed, whereas the disguised unemployment usage brings to the fore the fact that, in addition to open unemployment, there are others who are seemingly employed but who in fact constitute a part of the overall problem of labor utilization in the developing countries. We prefer the latter terminology because it provides a better indication of the complexities inherent in regarding the problem of labor utilization in the developing countries as an unemployment problem.
Sometimes this is put in the form of the statement that the marginal product of labor in agriculture is zero.
See Myrdal , Appendix 6, Vol. III, pp. 2041-61, for a detailed, critical discussion of the labor-surplus approach to disguised unemployment and for further development of the point that the concept is meaningful only within a dynamic context.
Again, the diversity among the developing countries must be emphasized. The greater the divergence of the labor utilization patterns in a developing country from those common to the developed countries, the more valid is the statement in the text for an individual country.
See Tobin  for a discussion of alternative definitions of full employment in the context of a developed economy.
The Phillips curve problem of a conflict between full employment and price stability can be ignored here.
However, in particular developing countries at particular times, cyclical unemployment can be a matter for concern.