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6105.0 - Australian Labour Market Statistics, Jul 2009  
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HISTORICAL LABOUR UNDERUTILISATION


INTRODUCTION

The extent to which available labour is underutilised is of interest from a number of perspectives. From an economic perspective, there is interest in the amount of spare capacity in the labour supply and its potential to contribute to the production of goods and services. From a social viewpoint, there is concern that people whose aspirations for work are not being met may suffer financially, personally and socially.

The ABS has a number of indicators which measure labour underutilisation. These include:

  • monthly unemployment rate
  • quarterly unemployment and underemployment rates
  • quarterly labour force underutilisation rate
  • annual extended labour force underutilisation rate
  • annual volume measures of underutilisation

This article provides analysis of the quarterly labour force underutilisation rate, and its components - the quarterly unemployment and underemployment rates. The labour force underutilisation rate provides a measure of the level of available, but unused, labour within the labour force. It is the sum of the number of people unemployed and the number underemployed, expressed as a proportion of the labour force, or alternatively as the sum of the unemployment rate and the underemployment rate.

Data on part-time workers preferring more hours and full-time workers on reduced hours have been collected in the Labour Force Survey (LFS) since February 1978. While this provided a proxy measure of the number of underemployed part-time workers information on their availability to work more hours was not available. However, changes to the LFS in 2001 and 2003, have enabled a more precise measure of underemployment, and hence underutilisation, consistent with the international standard, as defined by the International Labour Organisation (ILO). The two series (the proxy series available from February 1978 to February 2001, and the labour force underutilisation rate based on the ILO definition available from May 2001 onwards) are nonetheless closely related, and for the purpose of time series analysis can be used together to provide a historical perspective on underutilisation in Australia. The difference between the two series is discussed in more detail in the feature article 'Quarterly Labour Force Underutilisation Rate', published in the July 2008 issue of Australian Labour Market Statistics (cat. no. 6105.0).

Graph 1, also published in the feature article referred to above, illustrates the break in series that occurred in the quarterly data between February 2001 and May 2001. It is clear from the graph that the difference between the current series (from May 2001) and the historical proxy series ( February 1978 to February 2001) is relatively minor. For the purposes of clarity, however, the underutilisation data used in the graphs in this article are shown with the break in series.

1. Labour force underutilisation rate, Persons: Trend - Feb 1978 - May 2008
Graph: 1.  Labour force underutilisation rate, Persons: Trend—Feb 1978 – May 2008



HISTORICAL PERSPECTIVE ON UNDERUTILISATION

The trend historical labour force underutilisation rate clearly shows a number of periods in which underutilisation has been an increasing or decreasing concern for the labour market, and these closely align with the peaks and troughs of the economic cycle. Graph 2 particularly emphasises the relatively steep increase in the early 1980s and then in the early 1990s, with indications that the early stages of a similar trend are currently being observed in the first half of 2009.

2. Labour force underutilisation rate: Trend - Feb 1978 - May 2009
Graph: 2. Labour force underutilisation rate: Trend—Feb 1978 – May 2009


Over the past 30 years, the trend labour force underutilisation rate has fluctuated between a historical low of 8.4% (in May 1981) and a historical high of 18% (in November 1992). Since the high of November 1992 the rate generally decreased to the recent low of 10% in May 2008 and has since risen to 13.4% in May 2009.


THE COMPONENTS OF UNDERUTILISATION

In order to better understand the historical trends in underutilisation it is useful to analyse the trends seen in the two component rates, that is the unemployment rate and the underemployment rate. A number of trends have been observed in these series, shown in Graph 3, which in part reflect the changing working arrangements within the labour market, such as the increase in the proportion of people working part-time, which has contributed to the general increase in underemployment.

At the start of the period, underemployment was less of an issue than unemployment. However, by the 1999/2000 financial year the rates had converged, and since May 2001 the underemployment rate has consistently been higher than the unemployment rate. In the recent May 2001 to August 2007 period, which saw a period of expansion in the economy, the unemployment rate decreased at a noticeably faster rate than the underemployment rate.

3. Component rates: Quarterly unemployment and underemployment rates: Trend - Feb 1978 - May 2009
Graph: 3. Component rates: Quarterly unemployment and underemployment rates: Trend—Feb 1978 – May 2009


From 6.5% in February 1978, the quarterly trend unemployment rate remained generally steady until May 1981, at which point it increased over 2 years from 5.6% to 10.2% in May 1983. After falling to 5.9% in November 1989, the rate then rose to a historical high of 11% in May 1993. From May 1993 the rate generally decreased to a historical low of 4.1% in May 2008, and has since risen to 5.7% in May 2009.

In contrast, the trend underemployment rate increased from 2.6% in February 1978 to 7.1% in August 1992. From August 1992 until the high of 7.4% in November 2001 the rate remained relatively steady. From November 2001 the rate decreased to 5.9% in May 2008, and has since risen to the historical high of 7.7% in May 2009.


UNDERUTILISATION BY SEX

Since the series commenced in February 1978 the trend labour force underutilisation rate for females has been consistently higher than for males. The difference, as seen in graph 4, was most pronounced in November 1980, with a different of 5.7 percentage points (12.4% for females and 6.6% for males), and least pronounced in November 1992, with a difference of 2.6 percentage points (19.6% and 17%). The average difference between the rates between February 1978 and May 2009 was 4.1 percentage points. In May 2009, the difference is 2.7 percentage points.

4. Labour force underutilisation rate, Sex: Trend - Feb 1978 - May 2009
Graph: 4. Labour force underutilisation rate, Sex: Trend—Feb 1978 – May 2009


Analysis of the difference in trend labour force underutilisation rates over time reveals that most of the difference between the rates for males and females is a result of the different levels of underemployment for these two groups. Graph 5 reveals that the female trend underemployment rate has been on average 3.7 percentage points higher than the rate for males. This is largely explained by the greater participation in part-time employment by women relative to men, since the majority of underemployed people are employed part-time. During the period an average of 41% of employed women were employed part-time, compared to just 10% of men (trend).

5. Component rates: Quarterly unemployment and underemployment rates, Sex: Trend - Feb 1978 - May 2009
Graph: 5. Component rates: Quarterly unemployment and underemployment rates, Sex: Trend—Feb 1978 – May 2009



UNDERUTILISATION BY STATE

In May 2009, NSW had the highest labour force underutilisation rate (14.3%), followed by Victoria (14.2%), while the Northern Territory had the lowest (6.9%).

Graph 6 presents the trend labour force underutilisation rates from February 1978 for the three most populous states. During the economic downturn of the early 1980s the New South Wales rate peaked at a higher level than the rate for Australia, while this was the case for Victoria in the early 1990s, during the second major economic downturn. Since August 2004 the Queensland rate has generally been lower than the rate for Australia.

6. Labour force underutilisation rate, NSW, Vic., and Qld: Trend - Feb 1978 - May 2009
Graph: 6. Labour force underutilisation rate, NSW, Vic., and Qld: Trend—Feb 1978 – May 2009


In New South Wales over the past 30 years, the trend labour force underutilisation rate has fluctuated between a historical low of 7.4% (in May 1981) and a historical high of 17.4% in February 1993. Since then the rate generally decreased to a recent low of 10.7% in February 2008, but has subsequently risen to 14.3% in May 2009.

The Victorian trend labour force underutilisation rate has fluctuated between a historical low of 7.9% (in February 1979) and a historical high of 19.6% (in August 1993) over the past 30 years. Since the historical high of August 1993 the rate generally decreased to a recent low of 10.7% in May 2008, but has since risen to 14.2% in May 2009.

For Queensland, over the same period, the trend labour force underutilisation rate has fluctuated between a historical low of 8.6% (in May 1981) and a historical high of 18.1% (in November 1992). For the periods 1978 to 1991 and 1994 to 2003 the underutilisation rate in Queensland was generally higher than the national rate. Since the historical high of November 1992 the rate decreased to a recent low of 9% in May 2008, but has since risen to 12.8% in May 2009.

Graph 7 presents the trend labour force underutilisation rates for the three least populous states. The rates for South Australia and Tasmania have generally been greater than the rate for Australia, particularly during the 1990s. Earlier in the period this was also true for Western Australia, but since November 1992 the rate for this state has generally been lower, especially in recent years, reflecting the economic growth experienced in WA during the period.

7. Labour force underutilisation rate, SA, WA and Tas.: Trend - Feb 1978 - May 2009
Graph: 7. Labour force underutilisation rate, SA, WA and Tas.: Trend—Feb 1978 – May 2009


In South Australia over the past 30 years, the trend labour force underutilisation rate has fluctuated between a historical low of 9.8% (in February 1978) and a historical high of 20.4% (in August 1992). Since the high of August 1992 the rate generally decreased to a recent low of 11.6% in May 2008, but has since risen to 14.1% in May 2009.

The Western Australian trend labour force underutilisation rate has fluctuated between an initial low of 9% (in February 1981) and a high of 18.4% (in May 1992) over the past 30 years. Since the historical high of May 1992 the rate generally decreased to a historical low of 7.0% in May 2008, but has since risen to stand at 11.3% in May 2009.

In Tasmania over the same period, the trend labour force underutilisation rate has fluctuated between a historical low of 8.6% (in February 1979) and a historical high of 20.4% (in November 1993). Since the high of November 1993 the rate generally decreased to a recent low of 9.5% in August 2008, but has subsequently risen to 12.6% in May 2009.

Graph 8 presents the trend labour force underutilisation rates for the two territories. The rates for both the Northern Territory and the Australian Capital Territory have generally been much lower than the rate for Australia, particularly since 1990.

8. Labour force underutilisation rate, NT and ACT: Trend - Feb 1978 - May 2009
Graph: 8. Labour force underutilisation rate, NT and ACT: Trend—Feb 1978 – May 2009


The Northern Territory trend labour force underutilisation rate has fluctuated over the past 30 years between a historical low of 5.4% (in February 1980) and a historical high of 14.3% (in February 1988). The rate has recently decreased to 6.9% in February and May 2009.

In the Australian Capital Territory over the past 30 years, the trend labour force underutilisation rate has fluctuated between an early low of 6.8% (in May 1986) and a historical high of 15.4% (in February 1997). Since the historical high of February 1997 the rate generally decreased to a historical low of 6.8% in May 2007, but has since increased to 7.8% in May 2009.


RELATED RELEASES

A number of recent articles providing further analysis of labour underutilisation time series are available as follows:
  • an article in the May 2009 issue of Labour Force, Australia (cat. no. 6202.0)
  • the feature article, 'Labour underutilisation in the economic downturn', providing an analysis of the changes in components of underutilisation from February 2009 to May 2009, which can also be found in this issue (July 2009) of Australian Labour Market Statistics (cat. no. 6105.0)
  • the feature article, 'Quarterly Labour Force Underutilisation Rate', published in the July 2008 issue of Australian Labour Market Statistics (cat. no. 6105.0).


FURTHER INFORMATION

For further information, please contact Bjorn Jarvis (ph (02) 6252 6552 or email <bjorn.jarvis@abs.gov.au>).


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