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4102.0 - Australian Social Trends, 2000  
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Contents >> Work >> Under-utilised Labour: Retrenchment and redundancy

Underutilised Labour: Retrenchment and redundancy

Since 1982 over 4% of employed persons have been retrenched each year. Retrenchment ratios were lowest for graduates, and for women.

Retrenchment and redundancy
For the purpose of this review, the words retrenchment and redundancy are used interchangeably because of the difficulty of separating the two concepts during collection of the data.

In the data from the regular ABS Labour Mobility Survey, those retrenched or made redundant are given as one category of those who left their job involuntarily. Other categories of involuntary job loss are temporary or seasonal work, and leaving a job because of one’s own ill-health or injury. This data series includes the self-employed. It is the principal time series on retrenchment.

In the Retrenchment and Redundancy Survey, undertaken in July 1997, a more highly specified definition of retrenchment was used. Persons aged 18-64 were included among those retrenched if they had had some inducement to accept a redundancy package; and if they were dismissed from their job for any other reason including ‘age’ and ‘own ill-health or injury’. Moreover, these data refer to people retrenched over a three-year period. Where a person was retrenched more than once in the reference period, job details were collected only for the person’s most recent retrenchment. Voluntary workers were specifically excluded from the definition of retrenched, and so were contract workers whose contracts were not renewed.


The likelihood of retrenchment varies with economic cycles. Over 6% of employed workers were retrenched in the economic downturn years of 1983 and 1991 to 1992. But even in relatively good years over 4% of employed workers are retrenched each year.

Retrenchment is the main reason for involuntary job loss. While many people leave jobs each year by choice, job losers are those who ceased their last job involuntarily. In 1998, 58% of job losers were retrenched (408,600), while 32% lost temporary or seasonal jobs and 10% lost jobs because of their own ill health or injury.

The 1980s and 1990s have been marked by economic globalisation and reduced protection of domestic industries. Many Australian businesses have restructured, merged, downsized or gone bankrupt. On the other hand, new businesses have emerged and have helped to create many new jobs (total employment grew from 6.0 million in 1979 to 8.5 million in 1998). These new jobs are often in different industries and occupations (see Australian Social Trends 1997, Changing industries, changing jobs).

The consequent shift in skills demanded has meant that the employment future of people who have been retrenched may be quite precarious. Retrenched persons may be from industries and occupations which demanded a quite different set of skills from those needed in the expanding service industries.

Those retrenched have had to compete in a labour market where more people are seeking work than there are jobs being offered. Their personal characteristics can mean lengthy periods of unemployment for some; others are better placed to find new employment opportunities quickly.

Retrenchment ratios
An issue of social and economic interest is the incidence or likelihood of retrenchment for persons with different characteristics, such as occupation or age.

Knowledge of these probabilities allows the targeting of skills enhancement and other programs to help minimise time unemployed.

Defining the appropriate base for calculating such probabilities has, however, some real difficulties. UK redundancy rate data for any group is the number of persons made redundant in a three-month period, divided by the number of persons in the same group employed in the previous three-month period, and multiplied by 1000.1

The Australian data from the July 1997 Retrenchment and Redundancy Survey, however, refer to persons aged 18-64 years made redundant over a three-year period, of whom there were 685,400. While the total number of persons employed over those three years is known (9,339,200, giving a retrenchment rate of 7%), there are no equivalent figures for population sub-groups, for example males and females. Because of this, disaggregated retrenchment rates cannot be calculated.

However, an approximation is the retrenchment ratio, which is the measure used in this review. The denominator used for the retrenchment ratio is the average of the number of employees aged 18-64 at the beginning and end of the period. Employees have been chosen because they are the specific employment status group at risk of retrenchment. The age group is the same as that used in the Retrenchment and Redundancy Survey, i.e. persons aged 18-64 years.

An average was considered to be most appropriate for the denominator as, for certain categories such as industry and occupation, there were clear secular trends. For educational attainment categories, the denominator is the average for May 1994 and May 1997.

Because retrenchment ratios are derived estimates, values are rounded to whole numbers to emphasise that care must be taken in their interpretation as a measure of the likelihood of being retrenched in a three-year period.


Trends from 1979 to 1998

Data from the series of labour mobility surveys refer to persons retrenched over the previous twelve months. Also collected are data on persons employed at any time over the previous twelve months. Retrenchment rates are calculated by dividing the number retrenched by the number employed over the previous twelve months and multiplying by 100.




RETRENCHMENT AND UNEMPLOYMENT RATES, 1979-1998
RETRENCHMENT AND UNEMPLOYMENT RATES, 1979-1998 - GRAPH
    Source: Labour Mobility, Australia, February 1979 to February 1998 (cat. no. 6209.0); Labour Force Australia, February 1979 to February 1998 (cat. no. 6203.0).


    Using this measure, the retrenchment rate grew from 5.7% in 1979 to 7.2% in 1983. It then fell quite quickly and bottomed at between 4.1% and 4.6% in the period from 1986 to 1990. However, there was another economic recession in 1990 and 1991, when retrenchment rates rose from 4.4% to 6.5%. The subsequent fall was slower than in the 1980s, though by 1998 (the latest year for which data are available) retrenchment rates had fallen to 4.4%.

    The pattern of retrenchment mirrors that of unemployment (both rates rise in recessions and fall in economic upswings), but the retrenchment rate was always lower than the unemployment rate in the period 1979 to 1998. The unemployment rate measures the relative number of people unemployed at any point in time. In contrast, the retrenchment rate measures the flow of people out of jobs. Some of them find new jobs quickly, while others are unemployed for some time, and others leave the workforce altogether.

    INDUSTRIES: RETRENCHMENT RATIOS AND CONTRIBUTION TO TOTAL RETRENCHMENT, THREE YEARS TO JULY 1997

    Number of persons retrenched
    Share of all employees retrenched
    Retrenchment ratio
    Industry division
    '000
    %
    %

    Manufacturing
    166.9
    24.3
    16
    Retail Trade
    82.0
    12.0
    10
    Construction
    59.1
    8.6
    18
    Property & Business Services
    47.6
    6.9
    8
    Wholesale Trade
    46.4
    6.8
    11
    Government Administration and Defence
    39.5
    5.8
    12
    Accommodation, Cafes and Restaurants
    37.0
    5.4
    12
    Health and Community Services
    33.9
    4.9
    5
    Transport and Storage
    30.6
    4.5
    10
    Finance and Insurance
    23.1
    3.4
    8
    Education
    21.5
    3.1
    4
    Electricity, Gas and Water Supply
    19.3
    2.8
    25
    Agriculture, Forestry and Fishing
    18.0
    2.6
    13
    Personal and Other Services
    17.6
    2.6
    7
    Communication Services
    17.5
    2.6
    14
    Cultural and Recreational Services
    14.6
    2.1
    10
    Mining
    10.9
    1.6
    14
    Total
    685.4
    100.0
    11

    Source: Retrenchment and Redundancy, Australia, July 1997 (cat. no. 6266.0); unpublished data, Labour Force Survey, August 1994 and August 1997.


    Economic restructuring

    As societies become richer their industry structure changes. Industries which once employed many people shrink, while new industries grow. During the past two decades, manufacturing industries have tended to shrink while service industries have expanded. There is also evidence that larger firms have reduced their employment levels much more than medium or small firms.2

    The greatest numbers of persons retrenched between July 1994 and June 1997 were in manufacturing, retail trade and construction. Together these three industries accounted for 45% of the retrenched. As manufacturing and retail trade were the two largest employers in August 1997, the contribution of these two industries to retrenchment is not surprising. There has also been a long-term decline in manufacturing employment.

    The retrenchment ratios show a different pattern. The highest ratio was in electricity, gas and water supply, the industry which employed fewest people in August 1997.

    The lowest retrenchment ratios were in education services and health and community services. These two industries employ many people: health and community services was the fourth largest industry division in terms of number employed in August 1997, and education services was the fifth largest.

    The private sector dominates the economy, employing 77% of employees aged 18-64 in August 1997. During the three-year period to July 1997, the retrenchment ratio was higher in the private sector (11%) than in the public sector (8%). However, over a longer time period there has been a very large decline in public sector employment (see Australian Social Trends 1998, Public sector employment).

    MAIN REASON FOR RETRENCHMENT, THREE YEARS TO JULY 1997

    Permanent
    Casual
    All persons retrenched
    %
    %
    %

    Not enough work/job cuts
    42.9
    52.2
    45.6
    Business closed
    16.0
    11.1
    14.6
    Change of management
    9.0
    7.0
    8.4
    Other business problems
    3.4
    4.1
    3.6
    Ill health or physical disability
    3.4
    *2.5
    3.1
    Nature of job changed/new technology
    5.3
    *1.5
    4.2
    Other
    19.3
    20.0
    19.5
    Don't know
    *0.7
    *1.6
    *1.0
    Total
    100.0
    100.0
    100.0

    Source: Unpublished data, 1997 Retrenchment and Redundancy Survey.


    In 1997, the main reason given for retrenchment was lack of work or reductions in the workforce (46%). In general, casual workers were more likely to have been retrenched than permanent workers (the respective retrenchment ratios were 14% and 10%). Casual workers were more likely to have been retrenched because of lack of work than were permanent workers. Closure of businesses accounted for a further 15% of redundancies, giving a total of 60% of redundancies for reasons associated with economic restructuring. Changes in management and other business problems accounted for a further 12% of redundancies. In addition 4% indicated they had lost their jobs because of new technology or changes in the nature of the job. Altogether, 76% of redundancies were for reasons to do with changes in the economy and in business conditions.


    Occupational change
    The types of occupations in demand vary between industries, giving a difference in occupational mix between industries. As a result, shifts in industry structure lead to changes in occupational structure. As well, over time, the mix of occupations in each industry changes as production technologies change and as elements of the business are out-sourced or brought in-house.

    In the period since the 1990-1991 recession, there has been a growth in highly skilled jobs and in unskilled jobs. There has been a reduction in jobs with intermediate skill levels.3

    In August 1997, the occupational groups with the largest numbers of employees were professionals (1.3 million), intermediate clerical, sales and service workers (1.2 million), tradespersons and related workers (840,900) and labourers and related workers (700,900). In the three years to July 1997, but with the exception of those in the professional occupational group, these were also the groups that had the largest numbers of retrenchments. Taken together, labourers and related workers; tradespersons and related workers; and intermediate clerical, sales and service workers contributed 53% of all the retrenchments that occurred over the period.

    Retrenchment ratios for occupation groups varied considerably. The lowest ratios were in occupations with high skill levels. The highest retrenchment ratio was in the occupation group of labourers and related workers, and this was almost certainly associated with the high proportion of retrenchments in the manufacturing and construction industries.

    OCCUPATION: RETRENCHMENT RATIOS AND CONTRIBUTION TO TOTAL RETRENCHMENT, THREE YEARS TO JULY 1997

    Number of persons retrenched
    Share of all employees retrenched
    Retrenchment ratio
    Occupation (skill level(a))
    '000s
    %
    %

    Labourers and related workers (5)
    128.0
    18.7
    19
    Tradespersons and related workers (3)
    122.1
    17.8
    15
    Intermediate clerical, sales and service workers (4)
    113.6
    16.6
    9
    Intermediate production and transport workers (4)
    91.6
    13.4
    15
    Professionals (1)
    68.8
    10.0
    6
    Elementary clerical, sales and service workers (5)
    59.9
    8.7
    10
    Associate professionals (2)
    50.8
    7.4
    8
    Managers and administrators (1)
    26.6
    3.9
    7
    Advanced clerical and service workers (3)
    24.0
    3.5
    7
    Total
    685.4
    100.0
    11

    (a) Occupation groups are based on Australian Standard Classification of Occupations, 2nd Edition, which classifies occupations by skill level ranked from 1 (the highest) to 5 (the lowest) (cat. no. 1220.0).

    Source: Retrenchment and Redundancy, Australia, July 1997 (cat. no. 6266.0); unpublished data, Labour Force Survey, August 1994 and August 1997.


    Demographic characteristics
    Not only does occupational mix vary with industry, but so do various demographic characteristics. Some industries have much higher proportions of men, and some have employees with older age structures.

    While men made up 56% of employees aged 18-64 years in August 1997, they made up 68% of the retrenched. Their retrenchment ratio (13%) was well in excess of that for women (8%). Men were more concentrated in those industries which had made a major contribution to retrenchment levels, such as manufacturing and construction. This was a major factor explaining their higher retrenchment rates.

    Retrenchment ratios were lowest at ages 35-44 years (when family responsibilities also tend to be high). They were highest for persons aged 55-64 years.

    RETRENCHMENT RATIOS BY AGE AND SELECTED DEMOGRAPHIC CHARACTERISTICS, THREE YEARS TO JULY 1997

    18-24 years
    25-34 years
    35-44 years
    45-54 years
    55-64 years
    18-64 years
    Selected characteristics
    %
    %
    %
    %
    %
    %

    Men
    15
    13
    11
    13
    18
    13
    Women
    7
    8
    6
    8
    11
    8
    No post-school qualification
    13
    12
    10
    11
    14
    12
    Vocational qualification or diploma(a)
    9
    12
    9
    12
    19
    11
    Bachelor degree or higher
    *4
    5
    6
    8
    9
    6
    Born in Australia
    11
    11
    9
    11
    15
    11
    Born in main
    English-speaking countries
    9
    10
    9
    11
    20
    11
    Born in other countries
    15
    9
    8
    9
    18
    10
    Total
    11
    11
    9
    11
    16
    11

    (a) Includes those nurses for whom level of qualification is not known.

    Source: Retrenchment and Redundancy, Australia, July 1997 (cat. no. 6266.0); unpublished data, Labour Force Survey, August 1994 and August 1997; unpublished data, Transition from Education to Work Survey, May 1994 and May 1997.


    Retrenchment ratios decreased as educational level increased: the ratios were much lower for people with a bachelor degree or higher qualification at all ages. Overall, retrenchment ratios for people with a diploma or vocational qualifications were much the same as for people with no post-school qualifications. But at older ages, those with vocational qualifications had higher retrenchment rates than those with no post-school education; perhaps the vocational skills of older people become less needed with today's technologies.


    Retrenchment ratios for different birthplace groups are likely to vary somewhat, partly because people from some countries are concentrated in particular industries. However, the difference between Australian- born people and overseas-born people (whether from a main English-speaking country or elsewhere) was small. There were, however, some differences by age. Among 18-24 year olds, those born overseas in countries other than main English-speaking countries had above-average retrenchment ratios (15%). Among older workers (those aged 55-64 years) the pattern was different: all overseas-born people had higher retrenchment rates than the Australian-born.

    NUMBER OF TIMES RETRENCHED BY AGE, THREE YEARS TO JULY 1997

    Number of times retrenched

    Once
    Twice
    Three or more
    Total
    Age
    %
    %
    %
    %

    18-24
    79.2
    15.6
    5.2
    100.0
    25-34
    83.5
    9.7
    6.8
    100.0
    35-44
    86.0
    9.1
    5.0
    100.0
    45-54
    90.2
    7.6
    *2.3
    100.0
    55-64
    92.2
    *3.6
    *4.2
    100.0
    Total
    85.5
    9.6
    4.9
    100.0

    Source: Retrenchment and Redundancy, Australia, July 1997 (cat. no. 6266.0).


    Repeated retrenchment

    The 1997 Retrenchment and Redundancy Survey found that in the previous three years 85% of persons retrenched had been retrenched only once, while 99,500 persons (15% of people retrenched) had been retrenched more than once in that period.

    Young people were more likely to have been retrenched more than once: 16% of those aged 18-24 years had been retrenched twice, and a further 5% had been retrenched three times or more. The likelihood of being retrenched more than once decreased with age. Persons aged 45 years or more were less likely to have been retrenched more than once. For those aged 55 years or more this could be because many leave the labour force (see Australian Social Trends 2000, Retirement and retirement intentions).

    Subsequent labour force status
    Of those retrenched in the three years to July 1997, 55% were employed by the end of that period. The percentage employed was higher the longer ago the retrenchment occurred. Among those employed, many had had to change at least one aspect of the work they had previously done: 30% had changed industry, 23% had changed occupation, 13% had changed their hours of work, and 16% had shifted between permanent and casual status.

    LABOUR FORCE STATUS OF PERSONS WHO HAD BEE RETRENCHED IN THE THREE YEARS TO JULY 1997

    Date last retrenched

    July to December 1994
    1995
    1996
    January to June 1997
    Total
    Labour force status in July 1997
    %
    %
    %
    %
    %

    Employed
    80.3
    66.7
    52.7
    39.6
    54.7
      Changed industry
    50.3
    37.2
    28.2
    20.1
    30.1
      Changed occupation
    40.6
    32.0
    21.2
    12.7
    23.1
      Changed full-time/part-time status
    15.3
    16.1
    13.2
    8.9
    12.8
      Changed permanent/casual status
    21.9
    17.9
    15.2
    11.8
    15.5
    Unemployed
    *5.7
    14.3
    31.5
    45.4
    29.3
    Not in the labour force
    14.0
    19.0
    15.8
    15.0
    16.1
    Total
    100.0
    100.0
    100.0
    100.0
    100.0

    Source: Unpublished data, 1997 Retrenchment and Redundancy Survey.


    In part, these changes reflect shifts in the nature of jobs available. Increasingly jobs are part-time and casual (see
    Australian Social Trends 2000, Employment arrangements in the late 1990s).

    A high proportion of those retrenched in the six months prior to the survey were unemployed at the time of the survey (45%). However, with increasing duration since the time of retrenchment the likelihood of being unemployed at the time of the survey decreased. Among those retrenched between two and a half and three years before the survey, only 6% were still unemployed.

    While some retrenched people are able to find new jobs without assistance, others benefit from programs designed to provide new skills or other forms of assistance in finding work. Some larger organisations have provided such assistance in advance of the retrenchment taking place, but this is rare.

    Government-funded programs to assist the unemployed have tended to focus on supply-side initiatives, including programs which encourage the unemployed to undertake voluntary work.4


    Endnotes

    1 Terryn, B. 1999, 'Redundancies in the United Kingdom', Labour Market Trends, May 1999, pp. 251-261.

    2 Bureau of Industry Economics 1994, Job Growth and Job Decline, Bureau of Industry Economics Occasional Paper 21, AGPS, Canberra.

    3 Cully, M. 1999, 'A More or Less Skilled Workforce? Changes in the Occupational Composition of Employment, 1993 to 1999', Australian Bulletin of Labour, vol. 25, no. 2, pp. 98-104.

    4 For a review of a wide range of responses to retrenchment, see Christine Evans-Klock et al. 1999, 'Worker Retrenchment: Preventative and Remedial Measures', International Labour Review, vol. 138, no. 1, pp. 47-66. The focus in this article is on programs in various European countries and in the USA.



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