Background information

Some articles include "background information" boxes that provide further details on concepts, economic, scholarly, or technical terms, or on the historical background to an argument. All background information terms and concepts are brought together here in an alphabetized list—with direct links back to the corresponding article.

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  • Variations in scope and scale of apprenticeships

    Apprenticeship systems vary widely across countries. In Austria, Denmark, Germany, and Switzerland, 45–70% of 16–19 year-olds participate in apprenticeships as part of a dual education system that combines work-based with school-based learning. Apprentices make up nearly 4% of the workforce in these countries and in Australia, where apprenticeships have quadrupled in recent decades. England is rapidly catching up, with apprenticeships increasing threefold and incorporating occupations in business, banking, and the creative arts. Belgium, France, and the US are among the countries with very small apprenticeship systems and with little penetration into occupations outside construction and manufacturing.

  • Vickrey auction

    A Vickrey auction is a second-price, sealed-bid auction. Each bidder submits a confidential, or sealed price, bid. The highest bid wins the auction, but the winner pays the price of the second-highest bid. If multiple copies of the item are being auctioned, all winners pay the price of the lowest accepted bid—this is called a single-price auction. The economist William Vickrey showed that this auction design gives bidders an incentive to bid their true value of the good being auctioned instead of under-bidding in order to pay less if they win.

    Source: Lucking-Reiley, D. “Vickrey auctions in practice: From nineteenth-century philately to twenty-first-century e-commerce.” Journal of Economic Perspectives 14:3 (2000): 183–192.

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  • WHO recommendations on physical activity, ages 18–64

    In adults aged 18–64, physical activity includes recreational or leisure-time physical activity, transportation (e.g. walking or cycling), occupational (i.e. work), household chores, play, games, sports or planned exercise, in the context of daily, family, and community activities.

    In order to improve cardiorespiratory and muscular fitness, bone health and reduce the risk of [non-communicable diseases] and depression the following are recommended:

    1. Adults aged 18–64 years should do at least 150 minutes of moderate-intensity aerobic physical activity throughout the week, or do at least 75 minutes of vigorous-intensity aerobic physical activity throughout the week, or an equivalent combination of moderate- and vigorous-intensity activity.

    2. Aerobic activity should be performed in bouts of at least 10 minutes duration.

    3. For additional health benefits, adults should increase their moderate-intensity aerobic physical activity to 300 minutes per week, or engage in 150 minutes of vigorous-intensity aerobic physical activity per week, or an equivalent combination of moderate- and vigorousintensity activity.

    4. Muscle-strengthening activities should be done involving major muscle groups on two or more days a week.

    Source: WHO. Global Recommendations on Physical Activity for Health. Geneva, Switzerland: WHO Press, 2010; p. 8.

  • Wage drift

    Wage drift refers to the increase in worker compensation negotiated at the single plant (or firm) level relative to the level decided at the multi-employer (national, industrywide, or regional) level.

  • Welfare dependency of immigrants

    Welfare dependency is the degree to which immigrants take up welfare more intensively than natives. Residual welfare dependency refers to excessive welfare use after taking into account differences in the characteristics between immigrants and natives.

  • Welfare magnet hypothesis

    The welfare magnet hypothesis postulates that individuals’ migration decisions are influenced by the generosity of the welfare system in the country or area of destination.

  • Welfare programs

    Welfare programs refer to public initiatives devoted to the provision of social benefits. The OECD groups the various programs under broad categories that include both cash and in-kind benefits, such as pensions, income support, health, and other expenditures.

  • What are job-to-job flows?

    Job-to-job flows (sometimes called employer-to-employer flows) occur when workers switch employers with little to no gap between jobs. Job-to-job flows are distinct from hires from and separations to nonemployment (either unemployment or nonparticipation in the labor force). In the simplest case, a job-to-job flow occurs when a worker quits one company and is immediately hired by another.

    Most measures of job-to-job flows permit some short spells of nonemployment between jobs at the previous and subsequent employer. Depending on the amount of detail in the data source, common permitted gaps are one week, up to one month, and up to three months.

    Since workers can work for multiple employers simultaneously, there can be some overlap. US data sources that measure job-to-job flows keep track of a person’s single dominant employer and identify transitions with respect to that employer.

  • What do we talk about when we talk about informality?

    An internationally agreed framework defines informal employment based on job and production unit characteristics. Employees are in informal jobs if the employment relationship is not subject to labor, tax, or social protection laws or entitlement to certain benefits. Self-employed workers are in informal jobs if the production units in which they work are in the informal sector or if they are producing for their own final consumption. Alternatively, anything that is not formal employment is considered informal, where formal can be defined as work that is subject to a written contract or other document that certifies an entitlement to social protection. This option facilitates comparability since this regulation is common to most countries. However, this way of identifying formal workers ignores verbal labor contracts, while the use of written contracts does not allow identifying informal production units. Another option is to count workers covered by contributory social protection schemes as formal. This approach takes advantage of data from household and labor force surveys. However, data may not be comparable across countries because coverage against some risks, such as health, occupational hazards, old age, maternity, and unemployment, may be provided separately.

    Beyond measurement, but related to it, are contrasting views on the essence of informality, ranging from an entirely different nature (Perry et al., 2007) to a mostly dualistic view of labor markets (ILO, 2003). This paper adheres more to the first view, given that the frequent transitions of workers between formality and informality suggests that part of the population chooses to be outside the regulated economy.

    Source: Perry, G., W. Maloney, O. Arias, P. Fajnzylber, A. Mason, and J. Saavedra-Chanduvi. Informality: Exit and Exclusion. Washington, DC: World Bank, 2007; International Labour Organization. Final Report of the XVII International Conference of Labour Statisticians. Geneva: International Labour Office, 2003.

  • What drives the brain drain, and how can we quantify it?

    Poverty and a lack of economic growth, going hand in hand with discrimination, political repression, and a lack of freedom, motivate people to flee their country. The brain drain can be decomposed into two multiplicative components: the average emigration rate (the mean of all skill groups) and an index of positive selection in emigration (the proportion of college graduates in the total number emigrating divided by the proportion of college graduates among natives).

    The average emigration rate is an indicator of openness to migration; it depends on country size, geographic and cultural characteristics, and (to a lesser extent) development. The largest emigration rates are observed in middle-income countries, where incentives to leave are important and liquidity constraints (on travel) are not severe. As for the selection bias, economic and institutional development are the major determinants since positive selection increases with poverty. Overall, the largest brain drain rates are observed in small and poor countries in the tropics.

  • What is the U-shaped hypothesis?

    The U-shaped hypothesis describes the correlation of the female labor force participation rate with economic development (structural shifts in economic activity and changes to household labor supply and attitudes about women working outside the home). In its basic form, the hypothesis posits that female participation rates are highest in poor countries, where women are engaged in subsistence activities, and fall in middle-income countries because of the transition of (mainly) men to industrial jobs. As education levels improve and fertility rates fall, women are able to join the labor force in response to growing demand in the services sector. This is a stylized fact, but it is not robust to different data sets and econometric methodologies.

  • Who are the poor?

    In 2011, 1.3 billion people lived on less than $1.25 a day in purchasing power parity-adjusted dollars; these people are often referred to as the “extremely poor.” Another 1.7 billion people lived on $1.25–$2.50 a day. Together, these poor people are identified as the “absolute” or the “global” poor: people with the same purchasing power over commodities, no matter where they live, based on minimum nutritional requirements for good health and normal activities. In addition, poverty is measured in two other ways in individual countries. Some use country-specific poverty lines (for example, the country-specific poverty line for the US is much higher than the one for India, reflecting the US’ higher national income). In contrast, other countries, particularly in Europe, typically measure relative poverty, with the relative poverty line being set as a percentage of average income.

  • Who are undocumented residents?

    Undocumented residents live in a country without its government’s sanction. They may enter without permission, overstay a temporary visa, or may be asylum applicants whose applications are denied. People who live in a country without authorization from that country’s government are referred to in many ways. The names used may reflect a political, racial, or other agenda, or a moral or ethical stance. Often, they are called undocumented residents. Some other commonly used terms are irregular, illegal, non-status, or unauthorized. They may also be labeled as migrants or immigrants instead of residents.

  • Who is a migrant?

    In economics, “migration” often denotes the act of moving from one country to another. People who have left one country and settled permanently in another are “immigrants.”

    These terms are often used synonymously in its exploration of the academic performance of young migrants in host country schools. According to the OECD’s Programme for International Student Assessment (PISA) convention: students are classified as immigrants (or migrants) if both of their parents were born in a country other than the country where the student took the PISA test. Non-immigrant (native-born) students are defined as having at least one parent who was born in the country in which they attend school.

    Some comparisons also distinguish between first-generation students, who are foreign-born, like their parents, and second-generation students, who are born of immigrant parents in the country of assessment.

    Source: OECD. Untapped Skills: Realizing the Potential of Immigrant Students. OECD Publishing, 2012. Online at: http://www.oecd.org/edu/school/Untapped%20Skills.pdf

  • Who is the middle class?

    Sociologists and political scientists generally give a multi-dimensional definition of “middle class” that combines social status, occupation, and other characteristics beyond income. Economists tend to use a single metric based on some definition of household income, but there are many differences in establishing the relevant threshold. One approach identifies middle class as the middle three quintiles of the income distribution (Easterly, 2001). Alternatively, some analysts use a relative measure: households with incomes between 75% and 125% of the country’s median income (Birdsall, 2010). Others use absolute income levels, with wide ranges: from $2–$10 (in purchasing power parity) a day (Banerjee and Duflo, 2008) to $10–$100 (Kharas, 2010). All these definitions are somewhat arbitrary. One attempt to address this problem defines the lower boundary of the middle class based on a household’s probability of falling back into poverty (Ferreira et al., 2013). Using panel household data for a few Latin American countries, the study estimates $10 a day as the income threshold beyond which the probability of falling back into poverty is sufficiently low. It also defines a “vulnerable” a group, which includes people who are not poor (above $4 a day) but whose incomes are below $10 a day and who therefore have a higher likelihood of falling back into poverty.

    Source: Easterly, W. “The middle class consensus and economic development.” Journal of Economic Growth 6:4 (2001): 317–335; Birdsall, N. The (Indispensable) Middle Class in Developing Countries; Or the Rich and the Rest Not the Poor and the Rest. Center for Global Development Working Paper No. 207, 2010; Banerjee, A. V., and E. Duflo. “What is middle class about the middle classes around the world?” Journal of Economic Perspectives 22:2 (2008): 3–28; Kharas, H. The Emerging Middle Class in Developing Countries. OECD Development Centre Working Paper No. 285, 2010; Ferreira, F. H. G., et al. Economic Mobility and the Rise of the Latin American Middle Class. Washington, DC: World Bank, 2013.

  • Who may not be covered by the minimum wage?

    Many types of workers are effectively not protected by legal minimum wages in developing countries. For example, minimum wages do not apply to self-employed workers (who cannot be forced to pay themselves the minimum wage) or unpaid family workers.

    In some countries, legal minimum wages apply to employees in some occupations and industries but not in others. For example, minimum wages may not apply to employees in domestic service. Even in firms legally required to pay the minimum wage, some employers may pay employees less than the minimum. The term “informal sector” can be used to identify private sector workers who fit into these categories.

  • Why immigrants may NOT depress natives’ wages

    While the simplest labor–demand labor–supply model predicts that more immigrants in the labor market depress wages of national workers, several refinements of that model imply no effect or positive effect. Empirical studies typically fail to find significant effects of immigration on the wages of native-born workers.

    Here are important reasons why the simple theory may not capture empirically important factors that explain the lack of an effect:

     • Despite natives’ perceptions that immigrants are too many, immigration flows may be too small to make an impact on the host economy.

     • Immigrant and native workers have different skills and characteristics, and immigrants may take jobs natives do not want. Hence they do not compete for the same type of jobs.

     • Immigrants bring new skills in the host economy that may spur innovation, ultimately increasing productivity (and hence wages) of native-born workers.

     • As immigrants may perform manual jobs at low cost, native-born workers respond by specializing in communication-intensive jobs in which they have a comparative advantage. Specialization helps natives to upgrade their jobs and protect their wages from immigrant competition.

     • Firms can reduce labor costs by hiring immigrant workers at a lower wage with respect to natives. Firms then take advantage of this cost cut by creating complementarity/support jobs largely filled by native-born workers, who will not experience job losses or wage cuts.

     • As new immigrants arrive into a local labor market, natives move out. Because of this crowding-out effect, characteristics of the labor market, such as wages and employment rate, are unaffected.

     • Immigrants are not simply workers but consumers. They increase the host country’s demand for goods and services. In the long run, immigration can lead to more investment, resulting in greater demand for labor and thus increased wages and employment in the economy.

     • The inflow of less-educated immigrants increases the labor supply of highly educated natives with family responsibility. High-skilled female workers may now buy household services at a lower cost and then participate in the labor market with potential positive effects on the whole economy and natives’ wages.

     • When more workers are available, entrepreneurs respond by expanding their capacity or starting new firms up. The creation of new jobs will then raise wages for both native and migrant workers.

  • Women in Informal Employment: Globalizing and Organizing (WIEGO)

    Women in Informal Employment: Globalizing and Organizing (WIEGO) is a global actionresearch- policy network that aims to enhance the status of poor people (especially women) working in informal employment. Its key mission is to empower these workers economically, so that they have equal opportunities and rights.

    The network comprises: membership-based organizations of informal workers; researchers looking at the informal economy; and professionals from development agencies who work on issues related to the informal economy.

    WIEGO seeks to improve conditions for the working poor in the informal economy by increasing their voice, visibility, and validity–addressing low earnings, high risks, and adverse working environments. They do this by: researching the experiences of those informally employed; educating policy decision-makers and the public about ways to improve circumstances; and helping membership-based organizations of the working poor.

    As of May 2014, WIEGO had 177 members from 41 countries.

    Source: http://wiego.org/

  • Works councils in Germany

    Mitbestimmung,” literally translated from the German as “co-determination,” is a process by which workers have an active and participatory role in the management of a firm.

    The practice was established in Germany in 1951 through the Cooperative Management Law and amended in 1976 through the Co-determination Act (Mitbestimmungsgesetz), which established parity co-determination for firms with over 2,000 employees.

    The German Co-determination Act is the foundation of German industrial policy and is based on the principles of equality and cooperation of capital and labor, democratization of the economy and social development.

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