Australian Bureau of Statistics
4160.0 - Measuring Wellbeing: Frameworks for Australian Social Statistics, 2001
Latest ISSUE Released at 11:30 AM (CANBERRA TIME) 12/10/2001
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While there are many connections between economic and non-economic work, in the collection of work statistics, there is generally a broad level differentiation between these two aspects of work. Economic work, or, more specifically, labour market activity, can be understood as a demand/supply transaction. On the demand side are employers, who have a need for labour as a factor of production. On the supply side, the economically active population is the source of labour. Within this model, data about earnings, compensation of employees and labour costs describe the price of labour. Industrial relations data describes the arbitration of value and conditions between players, with industrial relations organisations supporting the exchange of labour at all stages of the supply/demand transaction. Each of the elements of this supply/demand framework has some key measures associated with it, some examples of which are shown in the diagram below.
SUPPLY MEASURES: THE LABOUR FORCE FRAMEWORK
Supply measures, such as employment and unemployment as measured by the labour force framework (see next diagram), are the main basis for the analysis of social issues. The ABS labour force framework and the concepts and definitions associated with it are based on recommendations of the International Labour Organisation (ILO) which have been developed through successive International Conferences of Labour Statisticians since the end of the First World War in the early 1900s. It is therefore similar to labour force frameworks used around the world. The framework is used in many ABS surveys and the Population Census. However, the main survey associated with this framework is the monthly Labour Force Survey (LFS), which provides official measures of national employment and unemployment.
Essentially, the framework is a map of the population from a labour supply perspective. It is concerned with identifying people who are contributing to the economy through their labour, or who are ready, willing and able to do so. In other words, it is concerned with identifying the economically active population.
To this end, people are classified into three mutually exclusive categories:
Each of these categories is strictly defined, according to the activities people were undertaking within the specified reference period (the previous week in the LFS). In general terms, people who have been working for pay or profit are classified as employed. Those who were not undertaking paid work are classified as unemployed if they were looking for work, and available to start work in the reference period. The category not in the labour force represents the residual population who were neither working for pay nor unemployed. The categories employed and unemployed together comprise the currently economically active population, or, the labour force.
The framework applies priority rules to ensure that each person is classified into only one of the three categories. In other words, someone who has been both working and looking for work will only be classified as employed, as the activity working has higher priority than the activity looking for work. Thus the labour force status categories are mutually exclusive and exhaustive measures of the population. The employed and unemployed categories are described in more detail below.
A person is classified as employed if they worked for pay, profit, commission or payment in kind, for one hour or more in the week preceding the date of interview, or had a job from which they were temporarily absent (e.g. because they were sick or on holiday). On the face of it, setting the minimum quantity of work at one hour per week might suggest an unnecessary bias towards employment. While a person may have worked for a small number of hours in the survey reference week, they may otherwise be substantially without work. People in this situation may even be legitimately receiving unemployment benefits. However, some clear cut boundary must be chosen and adhered to in order to provide a basic measure that is consistent and accurate. The one chosen (at least one hour of work) is consistent with the ILO definition, and allows international comparison. The one hour minimum also ensures that all economic activity is identified, as required by the System of National Accounts, and that unemployment is only measured for those who were completely without work. This measure can be balanced by a range of additional information about current and usual hours worked, including estimates of the number of people who worked for a small number of hours in the reference week, and data about whether they would prefer to work more hours.
Several key variables are nominated within the labour force framework as contributing to an understanding of the volume and characteristics of the employed labour force, including:
Status in employment - The status in employment variable describes employed people according to their relationship with the enterprise for which they work. Each employed person is classified according to whether they are an employee (including those who operate their own incorporated business), an employer, an own account worker (someone who operates their own unincorporated business without employees), or a contributing family worker (who works without pay in a family business). Thus this variable distinguishes between paid employment jobs, where remuneration is not directly dependent on profits, and self-employment jobs, where remuneration is directly dependent on profits.
Hours worked - Hours worked information is important in understanding the extent to which people contribute to the labour force, and differentials in earnings statistics. It assists in identifying potential areas of underwork and overwork and is used in measuring the productivity of the labour force. The hours an employeeusually or typically works may be different to the hours they actually worked in the survey reference week. It may be important to have information about both types of hours worked: usual and actual.
Full-time / part-time status - Employed people are considered full-time if they work, or usually work, 35 hours or more a week.
Occupation and industry - Although they do not contribute to a volume or size measure of the labour force, occupation and industry of employment are crucial sociodemographic and economic indicators, indicating the quality or characteristics of the labour force. Occupation and industry measures support analysis of a range of wellbeing and industrial issues, including education and training issues. Labour market trends can affect occupation and industry measures. For example, the outsourcing occurring in recent decades has seen many services traditionally undertaken in house outsourced to specialised services providers (e.g. payroll, training or recruitment services outsourced to specialist companies). As employees performing these functions are no longer categorised under the industry of the umbrella employer, this may have contributed to a measured growth in employment in service industries. Information about the classifications of occupation and industry used by the ABS is presented on the following page.
To be classed as unemployed, people must be without work, must have taken active steps to obtain work, and also be currently available for work. Actively looking for work includes such actions as writing, telephoning or applying in person to an employer for work. The active search criterion is predicated on the notion that a person must have done something specific to obtain work before being classified as unemployed, and that a general declaration of being in search of work is not sufficient (e.g. people who have looked in newspapers for advertised jobs would need to take some other more active step, such as answering a job advertisement, before being classified as unemployed). The criterion of being available to start work supports one of the key objectives of the framework: to measure the number of people currently available to contribute to the production of goods and services. Variables that can add valuable contextual information to unemployment data are:
Duration of unemployment - The duration of unemployment is measured as the length of time unemployed people have been continuously unemployed. People who have been unemployed for one year or more are classified as long term unemployed. Some difficulties encountered when measuring duration of unemployment as it can be difficult to determine whether a job seeker has consistently met the criteria for unemployment each week over a long period.
Full-time / part-time status - Unemployed people can be classified either as looking for full-time work or looking for part-time work. This information can assist in understanding the demand for full-time and part-time positions.
Currently vs usually active
In order to measure the current stock of people who are economically active, the ILO recommends a short reference period be used, e.g. the week preceding interview. The resulting measure is a 'snapshot' of labour force participation, and a series of these measures can be used to track movements in employment and unemployment over time, and to analyse trends. While this is effective and clear cut, some people move in and out of employment, unemployment or the labour force. For example, someone who is unemployed may obtain short term work then become unemployed again. In these instances, for the purposes of social analysis, people's usual labour force status may be of more interest than their immediate status. It is therefore possible to apply the labour force framework using a longer reference period, such as 12 months in order to differentiate between people who worked the whole year, those who worked part of the year, and those who did not work at all.
The unemployment rate
Analysts monitor unemployment because of its role as an indicator of current economic conditions, of future economic performance, and of economic hardship among the population. Estimates of unemployed people are based on the definitions outlined above, and are designed to measure available labour resources that are not being used in the economy. The unemployment rate is the percentage of unemployed people in the total labour force.
Because of the different uses to which unemployment data is put, the unemployment rate alone may not always fully meet the needs of analysts. It could be said, for example, that the official measure of unemployment understates labour underutilisation because it excludes people who want a job but are not looking for work, or people who are part-time workers who would prefer to work more hours. For this reason, there are three commonly recognised categories of people who are regarded as being potential labour resources: the unemployed, the marginally attached, and the underemployed. The latter two categories are described in more detail below. These three categories can be combined in a number of ways to produce measures that supplement the unemployment rate.
The way in which people are classified as not in the labour force, is clear cut: they are the residual population after employed and unemployed people have been accounted for. This clarity is important in a statistical framework where definitions need to be applied to a vast array of situations, and need to be used consistently over time and across different cultures. However, there will always be some people who are at the margins of such a classification. For example, people who wanted to work but were unavailable to start in the reference week because of illness, or the need to arrange child care, or who were not able to take active steps to find work in the reference week. Some regions may have so few employment opportunities that the options for undertaking active job search are limited. People who are discouraged about their employment prospects may not be actively seeking work although they would like a job. To cater for these kinds of situations the ABS uses a framework that identifies people who are marginally attached to the labour force, as shown below.
Information about people with marginal attachment to the labour force can provide insight into some of the more complex wellbeing issues surrounding work, such as why people wanting work are not available to start work (e.g. attendance at education) or are not looking for work. It is also valuable in understanding the factors affecting people's ability to secure employment, and can provide focus for training or other labour market assistance programs. Data about the reasons those who want work are not actively seeking work allows a distinction to be made between those not actively looking for work because they are discouraged, and those not actively looking for other reasons. Those who are not actively seeking work because they believe they are too young or old, lack the necessary schooling or training, or have language or other cultural difficulties are classified as 'discouraged jobseekers' in ABS statistics. Others classified as discouraged jobseekers are those who say there are no jobs in their locality or line of work, or no jobs available at all.
Discouraged jobseeker data can sometimes indicate the direction of future labour market trends as the populations described would tend to enter the labour force at some time in the future.
Statistics on unemployed and marginally attached populations reflect the inability of the market to provide jobs for every person who wants to work. An additional insight into the inability of the market to fully utilise available labour is provided by statistics on underemployment. Underemployment can take two forms:
Time related underemployment - In some cases a person may not be working as many hours as they would like, and are able, to work. They may work part-time because they are not able to find a full-time job, or work short-time for reasons imposed by the economic environment (e.g. temporary slowdowns in orders or shortages of materials). In technical terms, time related underemployment occurs when the hours worked by an employed person are below a threshold, and are insufficient in relation to an alternative employment situation which a person is willing and available to engage in.
Inadequate employment situations - In other cases a job may provide enough hours of work but be inadequate in other respects. For example, a person may be doing work that does not fully or appropriately utilise their skills or training. As there is great diversity in the ways in which employment can fail to meet the capacities or needs of workers, or even reduce their wellbeing, the definition of this non-time related aspect of underemployment continues to be under debate internationally. Many aspects of this type of underemployment are also difficult or complex to measure. Underemployment measures produced by the ABS are therefore currently limited to time related measures.
The framework identifying underemployed workers classifies employed people into three mutually exclusive groups:
Measuring underemployment can be complex , depending on the depth and focus of analysis required. For example, there are various sub groups that can be identified within these major groups, including those seeking additional hours, those available to start additional hours, those that meet both these criteria and those that meet neither. However, people's stated preference for more hours of work may be affected by a number of factors, including the hourly rates of pay available from alternative working situations (as they may be reluctant to accept extra hours for a lower rate of pay). In addition, while counts of the number of underemployed people can inform issues relating to equity and whether job preferences are being met, these counts may need to be supplemented by additional measures such as usual hours worked, and number of additional hours preferred, in order to inform more complex labour utilisation analysis. The way in which the ABS underemployment framework is designed, with its options for including and excluding criteria, enables it to be compatible with a variety of interpretations of underemployment, including the ILO definition of time related underemployment, and with measures of unemployment.
A number of the key concepts surrounding the price or cost aspects of economic work can be treated differently depending on context. For example, wages can be seen to have several different functions. They play a role in providing people with income - the means of living - and are a large component of people's earnings. At the same time wages are a cost to employers. Finally, within the context of workplace bargaining and monitoring economic flows, wages can be seen as the price of labour, and can provide an indication of inflationary processes in the economy.
This may appear complex, but it is a natural consequence of the fact that economic work is both a factor of production and, through its connection to income, has a major influence on consumption. It is also because work is inherently associated with transactions between employees and employers. In fact, data about economic work is collected and analysed from two main perspectives: that of the job holder, or employee, and that of the employer.
There are four commonly used concepts associated with measures of the price or cost of labour that need to be clearly differentiated in terms of these two perspectives. These are: earnings; compensation of employees; labour costs; and labour productivity. Some generalised descriptions of these are provided below. (See also Chapter 7 - Economic resources, for discussion of concepts relating to economic work, e.g. income and earnings).
Earnings - This is the narrowest concept of the four. Earnings are defined from the perspective of the jobholder and, in general terms, are the remuneration and payments in kind received by the jobholder, usually at regular intervals, for hours worked or work done; together with remuneration for specified time not worked (e.g. for time on annual or sick leave).
Compensation of employees - This includes earnings but is a broader concept, and is defined from the perspective of the employer. In general terms, compensation of employees are the employer payments to employees for labour services. Compensation of employees includes the remuneration payable to an employee as earnings. In addition, it includes regular employer contributions to funds and schemes on behalf of the employee, which may or may not eventually accrue to the employee (e.g. contributions to superannuation funds or workers compensation insurance schemes).
Labour costs - This is also defined from the perspective of the employer. Broadly, labour costs are all costs incurred by employers in the employment of labour. Thus this concept is broader than both the concept of earnings and the concept of compensation of employees. As well as earnings, and other payments to employees for labour services, labour costs can include the indirect costs to employers of such things as recruiting and training employees, providing working clothes or equipment to employees, or providing welfare services (e.g. staff counsellor, canteen).
Labour productivity - The concepts of earnings, compensation of employees and labour costs are important elements in the analysis of the broader economic concept of labour productivity. In general, productivity is the relationship between the output of an economic unit and the inputs which have gone into producing that output (e.g. labour and/or capital). The more that outputs are greater than inputs, the greater the productivity of the process. Thus, productivity can be increased through better utilisation of resources. Labour productivity is the value of the output produced by a unit of labour, such as a person, or an hour of work. Labour productivity is usually measured as the amount of Gross Domestic Product (GDP) produced per hour worked. Changes in the inputs to labour can increase labour productivity. For example, labour productivity can increase as a result of technological change, changes in labour efficiency or change in other inputs such as capital. Higher labour productivity can potentially contribute to higher rates of return to labour.
ABS measures of these four concepts align closely with ILO definitions and the System of National Accounts (SNA) 1993, although some variations from these exist. As well, different variations of the generalised definitions above are applied in different surveys, depending on the survey aims and reference period1 For example, some surveys will exclude irregular payments made to employees from their earnings measure as they are focusing on short reference periods, where others include these.
Measuring changes in earnings
When comparing changes in average weekly earnings over time, or differences in the earnings of different groups (e.g. men and women), it is important to take hours worked data into account. For example, much of the difference between men's and women's earnings can be explained by the different hours they work, as well as the sorts of jobs they do. Comparing the hourly rates of pay for men and women within specific occupation groups will allow differences to be identified more clearly.
Changes in average weekly earnings measure movements in the average wage bill, but they do not provide a reliable indicator of changes in wage rates. While changes in average weekly earnings may be the result of changes in wage rates of employees, they can also be caused by changes in the composition of the labour force. For example, if there is a change in the proportion of part-time earners in the labour force, or in the average number of hours worked by employees, average weekly earnings data will reflect this as a decrease or increase in earnings. Other compositional changes that can affect earnings data are variations in the distribution of occupations or in the proportions of male and female employees in the work force, changes in levels of skills within occupations, or variations in the distribution of employment between industries. The fact that this range of factors can affect average weekly earnings data has led to the development of a wage cost index.
The ABS Wage Cost Index (WCI) provides a direct measure of change in wage and salary rates. It is designed to measure change over time in the hourly rate of pay in employee jobs. It does this by taking a sample of specific jobs, establishing the wage rates for those jobs, and collecting ongoing information about any changes in the wage rates of those jobs. It is unaffected by broad level trends in the quality or quantity of labour purchased by employers overall, as it is only concerned with changes in the payment made for the sample of jobs. The WCI's main use is as a measure of wage pressures in the economy and therefore is useful for inflation forecasting. The ABS is currently developing a Labour Price Index that will perform a similar function to the WCI, but will incorporate 'non-wage' labour costs such as superannuation and payroll tax. (See also Chapter 7 - Economic Resources).
The number of current job vacancies is a key demand measure. When considered in conjunction with information about unemployment levels, job vacancy data can provide insight into the extent to which there is an imbalance between the available skills or capacities of the population, and proffered jobs. Other key demand measures produced by employer and business surveys include numbers of jobs, numbers of employees and industry of jobs.
Awards and enterprise bargaining - During the 1990s wage determination moved away from award-based centralised wage fixing towards decentralised agreement making at the enterprise, workplace and individual employee levels. Although these agreements are often underpinned by awards, the role of awards has been reduced principally to the status of a ‘safety net’ of minimum wages and conditions. Because enterprise bargaining is a relatively new phenomenon, the most effective methods of collecting and understanding data about the processes and outcomes of enterprise bargaining are still being developed. Several broad measures of the relative predominance of some main pay setting mechanisms are currently available (e.g. award, collective agreement, individual agreement).
Working arrangements - ABS statistics on working arrangements are primarily about work patterns rather than volume of work. Work patterns in many jobs are set to suit the demands of the production processes or services associated with that work. Jobs such as nursing, aircraft maintenance and cinema projection, will inevitably require people to work in patterns that differ from the standard nine to five required for office based jobs. Work patterns may also be flexible in relation to the needs of employees (e.g. working mothers), or employers, who may want to hire casual employees for short periods to supplement core staff. Working arrangements information includes information about start and finish times, rostered days off, overtime, shift work, days of the week worked, absences from work and casual and contract work.
Industrial disputes - In ABS statistics, an industrial dispute is broadly defined as a withdrawal from work by a group of employees, or a refusal by an employer or a number of employers to permit some or all of their employees to work: each withdrawal or refusal being made in order to enforce a demand, to resist a demand, or to express a grievance.
Trade unions - A trade union is defined by ABS as an organisation, consisting predominantly of employees, the principal activities of which are the negotiation of rates of pay and conditions of employment for its members. In terms of the transactions framework, individuals (as employees) seek to improve their wellbeing by joining unions which then negotiate with employers and industrial tribunals on their behalf. While the role of trade unions has been changing over the last few decades, historically they have played a fundamental role in industrial relations in Australia. Improved conditions of employment have been negotiated within a complex structure of legally constituted tribunals (Commonwealth and State) which have dealt with industrial matters such as wage fixation, rates of pay, hours of work, and equal pay principles. Unions are diverse in character, and range from small independent associations to large national organisations.
Because labour statistics are in demand as both key economic and social indicators, there are a number of different data collections conducted by the ABS and other organisations supporting estimates of employment, unemployment and other labour market phenomena. Each of these collections has its own objectives, and uses a particular methodology. Some data sets are collected from households, while others are collected from businesses. Thus a variety of different counting units are used (e.g. households, persons, businesses, jobs, dollars, events - such as industrial disputes). Some data are derived from administrative processes (e.g. unemployment benefit registration), or from job vacancy advertisements. Some estimates will relate to a point in time and others to changes over time, and surveys also use reference periods. Therefore, while labour statistics from different sources can be complementary, they will clearly be difficult to fully reconcile, even where standard definitions and classifications are applied.
Even within ABS household survey collections there is variation in the way in which labour force data is collected. The Labour Force Survey (LFS) is designed specifically to measure labour force characteristics of the Australian population and it uses a large set of questions to provide information that is both detailed and accurate. Other household surveys, such as Special Social Surveys (SSS), are primarily interested in collecting detailed information about specific social issues (e.g. health, housing) and collect information on labour force characteristics for explanatory purposes only. So, while these surveys collect labour force information which is conceptually the same as that collected in the LFS, the data is collected using a reduced set of questions which do not allow the same level of detail and precision as the LFS. Similarly, the Census is constrained to using brief, self-enumerated survey questions to elicit labour force status data. In this case, reduced labour force detail and precision is balanced by the availability of small area estimates.
Within business based collections, estimates will also vary depending on the nature and purpose of each collection, and on the methodology used. Some surveys are designed to collect the total flow of earnings to employees over a quarter, while others are designed to provide estimates of average earnings for a particular pay period. The different purposes of these surveys make it necessary to have different reference periods, and to define concepts such as earnings, slightly differently.1 However, even surveys with similar purposes can produce different estimates due to different sample designs and survey methodologies.
Differences also exist between household and business based measures. This is partly because similar concepts are measured from different perspectives and different counting units are used. For example, when measuring employment, household collections count the number of people employed, where a business based collection may count the number of jobs on business payrolls. The number of jobs may be larger than the number of employed people because some people have more than job. Methodology also contributes to measurement differences. For example, coverage of businesses may be incomplete, either through exclusion of certain sectors, such as agriculture, or from deficiencies in sample frames.
Finally, ABS labour statistics may differ from those produced outside the ABS, particularly those derived from administrative processes (partly because administrative processes do not generally have statistical definitions and evaluation as their primary purpose). For example, Department of Family and Community Services (DFACS) data on unemployment allowances provides information about unemployment that is complementary to the LFS, but not comparable with it. Differences between LFS and DFACS unemployment information occur in situations where, for example, a person:
In economic accounting, the notion of work as a wider concept than economic based labour is a fairly recent development. Prior to the 1993 UN revision of the System of National Accounts (SNA), work equated strictly with the notion of economic activity. A person was counted as economically active only if they contributed or were available to contribute to the production of goods and services falling within the SNA production boundary. Although the 1993 revision did not extend the boundary of economic activity, it did allow unpaid household work to be encompassed by the SNA framework within a specialised system known as satellite accounts.
In Western society, the impetus for seeing work in a wider context came partly from the social movement in the seventies and eighties towards greater recognition of the economic value of unpaid work, particularly household work such as child rearing, cooking, cleaning, etc. These activities were mainly undertaken by women, although they could be hired in the labour market and, in this context, could potentially be included within the SNA. Since that time, these types of tasks have been increasingly recognised as contributing to society both socially and economically. Work undertaken outside the market is not characterised by obvious contracts involving remuneration for a specified input of labour, knowledge or skills. Contracts are nevertheless involved, albeit at a less obvious and more intimate level of transaction. People may, for example, find themselves committed to household work and the care of children as part of a larger commitment to a personal relationship.
TIME USE FRAMEWORK
The ABS uses measures based on its Time Use Framework to inform issues relating to non-economic work. The framework also identifies time spent on economic work, and on leisure activities, enabling comparisons to be made between these three areas. (Further discussion of the Time Use Framework used by the ABS is included in Chapter 10 - Culture and Leisure.) The Time Use Framework incorporates a time use activity classification which classifies a comprehensive range of activities according to whether they are necessary, contracted, committed or free time activities. Data collected about the amount of time spent on each activity can be aggregated for each category of time.
In summary, necessary time is time taken up by activities such as sleeping, eating and personal care which serve basic physiological needs. Contracted time is time spent on paid work and regular education. Committed time is time spent on activities to which a person is committed through social obligation such as household or voluntary work. Free time is the time left when the previous three types of time have been taken out of a person's day - mainly leisure time. Non-economic work comprises the entire category of committed time. The unpaid work activities identified in satellite national accounts are all committed time activities. The table below shows the four time categories and the major activity groupings that fall into each category.
The Time Use Activity Classification is a hierarchical classification, structured into three levels of detail, which describes what people do with the twenty four hours of the day. The classification identifies the 9 major groups shown above, 70 minor groups and 186 more detailed categories.2 Supporting information, regarding whom the activity is done for, whom the activity is done with, and the location of the activity, further describes the way in which people use their time.
It is worth noting that non-economic work is sometimes referred to as unpaid household work. In ABS estimates, the terms non-economic work and unpaid household work refer to the same thing, e.g. the time spent on unpaid activities undertaken in committed time by individuals (the household sector), irrespective of whether or not the work is within or outside the individual's household.
VALUING NON-ECONOMIC WORK
Two basic methods for valuing the time spent on non-economic work have conventionally been used. These are the replacement cost approach (the cost of replacing this work with paid work), and the opportunity cost approach (the cost to the person undertaking the work of missed income earning and other opportunities). Within the replacement cost approach there are further alternatives. Activities can be valued at the individual function replacement cost, for example, the cost of getting clothes ironed, or the housekeeper replacement cost, where the cost of a generalised housekeeper covers the costs of individual activities such as ironing.3
This page last updated 31 July 2006
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