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6105.0 - Australian Labour Market Statistics, Jan 2011  
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Contents >> Articles and Analysis >> Labour underutilisation: more than unemployment

Labour Underutilisation: More than unemployment

Labour underutilisation (that is, unemployment and underemployment) can have a large impact on the people who experience it, their families, the community and also the economy. From a social viewpoint, there is concern that people whose aspirations for work are not being realised may suffer in a number of ways - personally, financially and socially. From an economic perspective, there is interest in the capacity for growth in the labour force now, and the future labour supply and its potential to contribute to the production of goods and services. The labour underutilisation rate attempts to provide a more comprehensive view of underutilised labour in the labour force than the unemployment rate or the underemployed rate can do alone.

What is Labour Underutilisation?

Unemployment is the most widely known and used component of labour underutilisation. However, labour underutilisation includes a wider group of people than the unemployed, such as people who are part-time workers who are willing and available to work more hours, and people who are willing and available to work but have become discouraged and stopped looking for work.

Labour underutilisation includes people who are:

  • Unemployed;
  • Underemployed; or
  • Marginally attached to the labour force.

Who are the unemployed?

People are classified as unemployed based on their activity in the survey reference week. Every month the ABS collects information from the occupants of a sample of dwellings. These people are asked a range of questions, such as whether or not they are working, and if they are not working they are asked whether they looked for work and whether they were available for work. Answers to questions like these allow the ABS to accurately estimate the labour market activity of Australia's resident civilian population aged 15 years and over in a way that is consistent with international standards. The ABS does not use information about the receipt of any income assistance to measure unemployment.

Unemployed persons are those aged 15 years and over who were not employed during the reference week, and had:

  • actively looked for full-time or part-time work at any time in the four weeks up to the end of the reference week and were available for work in the reference week; or
  • were waiting to start a new job within four weeks from the end of the reference week and could have started in the reference week if the job had been available then.

Long-Term Unemployment

People who are unemployed for long periods of time (for a year or more) may experience greater economic hardship and social consequences than those who are unemployed for short periods. In addition, they may have more difficulties in finding employment because of loss of relevant skills and employers' perception of their 'employability'. The ABS considers people who have been unemployed continuously for 12 months or more to be long-term unemployed. A long-term unemployment rate is included in the suite of labour underutilisation measures because the economic and social consequences of being unemployed are affected by the length of time a person is unemployed.

Underemployment

Underemployment, like unemployment, reflects additional labour supply which is available but which is underutilised, and is an important component of underutilised labour. Underemployed workers are basically employed persons who want, and are available for, more hours of work than they currently have. Being underemployed can have a significant impact on the financial, personal and social lives of both individuals and their families. While there are some people who are entirely without work (the unemployed), there is also a growing number of people who are in work but who are underemployed. Most of the underemployed are part-time workers who would like to work more hours, but the underemployed also includes full-time workers who could not work their usual full-time hours for economic reasons.

The two distinctive groups defined as underemployed are:

  • persons employed part-time who want to work more hours and are available to start work with more hours, either in the reference week or in the four weeks subsequent to the reference week; and
  • persons employed full-time who worked part-time hours in the reference week for economic reasons (such as being stood down or insufficient work being available). It is assumed that these people wanted to work full-time in the reference week and would have been available to do so.

Extended Labour Force Underutilisation

While the labour force underutilisation rate reflects the proportion of people in the labour force who are not being fully utilised, there are also some people outside the labour force who could be considered as part of the potential labour supply.

Extended labour force underutilisation is the broadest measure of underutilised labour which includes:

  • Unemployed;
  • Underemployed; and
  • Two groups of people considered to be marginally attached to the labour force.

What is marginal attachment to the labour force?

The concept of marginal labour force attachment is quite broad. It includes people who have a strong likelihood of joining the labour force in the near future as well as some who have taken few, if any, steps to find employment.

A group of special interest within the marginally attached population to the labour force is discouraged jobseekers. These are people who want to work and could start work within four weeks if offered a job, but who have given up looking for work for reasons including:

  • being considered too young or too old by employers;
  • lacking necessary schooling, training, skills or experience;
  • having difficulties with language or ethnic background;
  • feeling there are no jobs in their locality or line of work; or
  • feeling there are no jobs available at all.

This group shares some characteristics with unemployed people, although they have given up looking for work because they believe they cannot find a job. The annual LFS supplementary survey Persons Not in the Labour Force (cat. no. 6220.0) collects data about people who, while considered to be outside the labour force, nevertheless have some attachment to the labour force, and could be considered to be ‘jobless’ (although technically neither employed nor unemployed).

Two groups defined as marginally attached to the labour force are included in the extended labour force underutilisation rate, namely:
  • persons actively looking for work, who were not available to start work in the reference week, but were available to start work within four weeks; and
  • discouraged job seekers - a group of people wanting to work and who were available to start work within four weeks; however their main reason for not looking for work was that they believed they would not find a job for labour market related reasons.

The following framework outlines those people not working and the various criteria to determine whether they are unemployed or not in the labour force. For those not in the labour force it further identifies those marginally attached.

Persons Not Employed Framework

The overall picture of labour underutilisation

The following framework draws together the unemployed, the underemployed and persons not in the labour force to give an overall picture of labour underutilisation.

Labour Underutilisation Framework

Labour underutilisation measures in hours

Labour underutilisation can be measured either by population (head count) or hours based (volume) estimates. The headcount measure relates to the number of people whose labour is not being fully used, whereas the volume measure provides a better picture of the total amount of potential labour inputs, or hours of work available, to the economy.

Whether people are unemployed or underemployed, not all people are in search of work (or more work) or require the same number of hours of work. The main use of the measure can be illustrated by the following example. Suppose there were two people who are considered underemployed, where one is working 20 hours but would like to work 30 hours, and the other person is working 25 hours and would like to work 30 hours as well. Both people will be counted as underemployed and would contribute equally to the headcount underutilisation measure. However, the fact that one is willing to work an additional 10 hours per week and the other only an additional 5 hours would be reflected in the volume underutilisation measure.

Remember!

There is no single measure that can fully capture the complexity of the labour market or satisfy all the purposes for which such data are needed. The number of unemployed persons and the unemployment rate are widely used as measures of the available resources which are not being utilised in the economy. However, the official unemployment rate clearly only captures part of the picture of the total underutilised labour resources, and this picture can be supplemented with other measures of labour underutilisation.


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