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6105.0 - Australian Labour Force Statistics, Jul 2003  
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Feature Article - Experimental volume measures of labour underutilisation
This article was published in the July 2003 issue of Australian Labour Market Statistics (cat. no. 6105.0).


EXPERIMENTAL VOLUME MEASURES OF LABOUR UNDERUTILISATION


INTRODUCTION

The extent to which the available supply of labour is utilised is an important social and economic issue. In September 2002, there were just over 1.2 million people in the labour force whose labour was underutilised, offering a total of 29 million hours of additional labour.

While the number of unemployed people and the unemployment rate are the best known measures of labour underutilisation, broader measures can be formed by grouping information on unemployed people with that of other groups within the population whose labour is underutilised. The ABS already produces measures of labour underutilisation on a 'headcount' basis, i.e. based on the number of people whose labour is underutilised. These measures are presented in tables 4.1 and 4.2 in this publication, and are described in detail in Information Paper: Measures of Labour Underutilisation (cat. no. 6296.0).

Labour underutilisation can also be measured in terms of the number of hours of labour that is underutilised. Such measures may be more relevant for analysing the spare capacity of the labour force. ABS has now developed an experimental hours-based (or 'volume') version of the labour force underutilisation rate for September 2002. Separate rates relating to the volume of unemployment and the volume of underemployment can also be calculated from the way the volume labour force underutilisation rate is derived.

This article presents experimental volume measures of underutilised labour for September 2002, describes how these experimental measures were calculated, and provides summary data on the hours of underutilised labour of unemployed and underemployed persons.


VOLUME MEASURES OF LABOUR UNDERUTILISATION

The volume labour force underutilisation rate is the ratio of the total volume of underutilised labour in the labour force (i.e. hours of work sought by unemployed persons plus additional hours of work offered by underemployed workers) to the total volume of utilised and underutilised labour in the labour force. The following equation describes the derivation of this measure (components of the equation are described in more detail in later paragraphs).

Equation: volume labour force underutilisation rate

The volume of potential labour in the labour force is equal to the volume of labour sought by unemployed persons, plus the total volume of labour offered by underemployed workers, plus the volume of labour usually provided by fully employed persons (i.e. employed persons who were not underemployed).

A 'volume' version of the unemployment rate can be expressed as follows:

Equation: volume unemployment rate

Similarly, a 'volume' version of the underemployment rate can be expressed as follows:

Equation: volume underemployment rate


VOLUME OF LABOUR SOUGHT BY UNEMPLOYED PERSONS

Information about the number of people unemployed has been available from the ABS Labour Force Survey (LFS) since the 1960s. Until recently, information about the number of hours sought by the unemployed was not available from the LFS or other ABS data collections. From July 2002 this information is available annually from the Job Search Experience Survey (JSE).

The number of hours of work sought by unemployed persons that was used to derive the experimental volume measures of underutilised labour for September 2002 was estimated by applying the distribution of weekly hours sought from the July 2002 JSE to the numbers of unemployed persons seeking full-time and part-time work from the September 2002 LFS. This assumes that the distribution of hours sought in September 2002 is similar to that derived for July 2002.

Unemployment is the largest component of underutilised labour in the labour force. In September 2002 the 628,500 people who were unemployed comprised more than half (52%) of all persons in the labour force whose labour was underutilised. When measured in terms of the number of hours of labour that was underutilised, the 19.5 million weekly hours of work sought by unemployed people comprised more than two-thirds (68%) of the underutilised labour in the labour force.

UNEMPLOYED PERSONS, Number of persons and weekly hours of work sought - September 2002
Males
Females
Persons

Looking for full-time work'000 persons
287.3
167.4
454.7
Looking for part-time work'000 persons
68.2
105.5
173.7

Total'000 persons
355.5
273.0
628.5

Looking for full-time work'000 hours
10,770.1
5,546.6
16,316.7
Looking for part-time work'000 hours
1,274.1
1,927.8
3,201.9

Total'000 hours
12,044.2
7,474.4
19,518.6

Source: September 2002 Labour Force Survey; July 2002 Job Search Experience Survey.


On average, unemployed people wanted to work 31 hours per week. Unemployed people looking for part-time work wanted to work an average of 18.4 hours and those looking for full-time work wanted an average of 35.9 hours. Unemployed men were more likely to be seeking full-time work than unemployed women (81% compared with 61%). Related to this, unemployed men tended to seek more hours of work than unemployed women (an average of 34 hours for unemployed men compared with 27 hours for unemployed women).

Graph: Unemployed persons, weekly hours of work sought, September 2002



VOLUME OF ADDITIONAL LABOUR OFFERED BY UNDEREMPLOYED WORKERS

Underemployment refers to employed persons who work fewer hours than they want to. The ABS defines underemployed workers as:
  • part-time workers (people usually working less than 35 hours a week and who did so in the reference week), who want to work additional hours and are available to do so; and
  • full-time workers who worked less than 35 hours in the reference week for economic reasons (e.g. they had been stood down, put on short time or there was insufficient work available for them).

These two population groups are also referred to in this article as 'underemployed part-time workers' and 'underemployed full-time workers', respectively.

Information about the number of hours usually worked and the number of additional hours offered by underemployed part-time workers is available from the annual Underemployed Workers Survey conducted in September. The volume of additional labour offered by underemployed part-time workers was calculated as the difference between their preferred total weekly hours of work and the hours they usually worked in all jobs.

The volume of additional labour offered by underemployed full-time workers is, in a more precise sense, the volume of labour 'lost' as a result of their being stood down, put on short time, or due to insufficient work. This was calculated from the September 2002 LFS as the difference between their usual weekly hours of work and the (reduced) actual hours they worked in all jobs during the reference week.

In September 2002, an additional 9.1 million weekly hours of potential labour was offered by the 581,200 workers who were underemployed. The potential labour offered by underemployed part-time workers was 8.0 million hours and by underemployed full-time workers was 1.1 million hours.

UNDEREMPLOYED WORKERS, Number of persons and additional weekly hours of work offered - September 2002
Males
Females
Persons

Underemployed full-time workers (a) (b)'000 persons
40.9
13.9
54.8
Underemployed part-time workers (c)'000 persons
204.0
322.4
526.4

Total (b)'000 persons
244.9
336.3
581.2

Underemployed full-time workers (a) (b)'000 hours
858.8
260.6
1,119.4
Underemployed part-time workers (c)'000 hours
3,405.0
4,567.9
7,972.8

Total (b)'000 hours
4,263.7
4,828.5
9,092.2

Footnotes
(a) Full-time workers who worked less than 35 hours in the reference week for economic reasons (e.g. stood down, on short time, or insufficient work).
(b) The number of underemployed full-time workers used in volume measures is based on LFS data and differs slightly from the headcount measures in tables 4.1 and 4.2 of this publication.
(c) Part-time workers wanting more hours who were available to start work with more hours.

Source: September 2002 Underemployed Workers Survey; September 2002 Labour Force Survey.


Underemployed workers wanted an average of 15.6 hours of additional work each week, although underemployed men tended to want more additional hours than underemployed women (17.4 hours compared with 14.4 hours).

Graph: Underemployed workers, additional weekly hours of work offered, September 2002



VOLUME OF POTENTIAL LABOUR IN LABOUR FORCE

The volume of potential labour in the labour force was calculated as:

(i) the volume of labour sought by unemployed persons, plus

(ii) the volume of additional labour offered by underemployed workers, plus

(iii) the usual hours of work performed in all jobs by underemployed part-time workers, plus

(iv) the actual hours of work performed in all jobs in the reference week by underemployed full-time workers, plus

(v) the usual hours of work performed in all jobs by all other employed persons.

Components (i) and (ii), which represent underutilised labour in the labour force, have been described in previous paragraphs. The total of (iii) to (v), which represents utilised labour in the labour force, is sourced from the September 2002 LFS.

VOLUME OF POTENTIAL LABOUR IN THE LABOUR FORCE, Number of weekly hours - September 2002
Males
Females
Persons
'000 hours
'000 hours
'000 hours

Unemployed persons (hours of work sought)
12,044.2
7,474.4
19,518.6
Looking for full-time work
10,770.1
5,546.6
16,316.7
Looking for part-time work
1,274.1
1,927.8
3,201.9

Underemployed workers (additional hours of work offered)
4,263.7
4,828.5
9,092.2
Underemployed full-time workers
858.8
260.6
1,119.4
Underemployed part-time workers
3,405.0
4,567.9
7,972.8

Employed persons (usual hours of work performed) (a)
215,668.6
128,503.5
344,172.1
Full-time workers (a)
202,684.6
95,189.5
297,874.1
Part-time workers
12,984.0
33,314.0
46,298.0

Total volume of potential labour in the labour force (b)
231,976.5
140,806.4
372,782.9

Footnotes
(a) Actual hours worked in the reference week for underemployed full-time workers and usual hours worked for all other employed persons.
(b) Hours of work sought by unemployed persons, plus the total hours of work offered by underemployed workers, plus the usual hours worked by fully employed persons (i.e. employed persons who were not underemployed).


LIMITATIONS OF VOLUME MEASURES

The experimental volume measures for September 2002 are based on data from a number of sources. Information on the hours of work sought by unemployed persons is only available in respect of July each year, starting with July 2002. The distribution of hours sought by unemployed persons in July 2002 was derived separately for unemployed persons looking for part-time work and for those looking for full-time work, by sex and state/territory. It is assumed that the distribution of hours sought by unemployed persons for September 2002 is similar to that derived for July 2002. This assumption is made more robust by using characteristics that have a significant influence on the number of hours sought, i.e. looking for part-time or full-time work, in deriving the distribution. In addition, there are unlikely to be significant seasonal differences between the two months of July and September.

There is also an implied assumption underlying the way ABS measures labour force underutilisation that full-time workers do not offer any more labour than their usual hours of work. The experimental volume measures of labour force underutilisation do not include estimates of the additional hours of work that full-time workers were willing and available to work, over and above their usual hours of work. Information from the 2000 Survey of Employment Arrangements and Superannuation (SEAS) indicates that 16% of full-time employees (excluding owner-managers) preferred to work more hours. However, data are not available on the number of additional hours of work offered by full-time workers.

For some analytical purposes, it may be desirable to deduct hours of 'overwork' (the number of hours usually worked in excess of the preferred hours) from the volume of utilised labour, to give a measure of hours of work willingly offered. Information from SEAS indicates that 4% of part-time and 8% of full-time employees (excluding owner-managers) preferred to work fewer hours (for less pay). However, data are not available on the number of hours of 'overwork' of full-time or part-time workers.


COMPARISON OF VOLUME AND HEADCOUNT MEASURES

The following table compares the experimental volume measures with the corresponding headcount measures. (The headcount measures use the number of underemployed full-time workers from LFS data and differ slightly from those in tables 4.1 and 4.2 in this publication.) For all three underutilisation measures (i.e. unemployment, underemployment and labour force underutilisation), the experimental volume rates for September 2002 were lower than the corresponding headcount rates.

MEASURES OF LABOUR UNDERUTILISATION, Selected headcount and volume measures - September 2002
Males
Females
Persons
%
%
%

Headcount measures (a)
Unemployment rate
6.3
6.1
6.2
Underemployment rate
4.4
7.5
5.8
Labour force underutilisation rate
10.7
13.6
12.0

Volume measures (b)
Volume unemployment rate
5.2
5.3
5.2
Volume underemployment rate
1.8
3.4
2.4
Volume labour force underutilisation rate
7.0
8.7
7.7

Footnotes
(a) Based on the number of persons.
(b) Based on the number of hours of labour sought and offered.


FURTHER INFORMATION

Information Paper: Measures of Labour Underutilisation (cat. no. 6296.0) describes concepts behind the ABS headcount measures of labour underutilisation in detail. To provide comments on the the proposed methodology for volume measures of labour underutilisation, or for further information relating to these experimental measures, please contact Rhonda de Vos on Canberra 02 6252 7437 or email rhonda.devos@abs.gov.au.

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