6105.0 - Australian Labour Market Statistics, Jul 2012  
Previous ISSUE Released at 11:30 AM (CANBERRA TIME) 10/07/2012   
   Page tools: Print Print Page Print all pages in this productPrint All RSS Feed RSS Bookmark and Share Search this Product

VOLUME MEASURES OF LABOUR UNDERUTILISATION


MEASURES OF LABOUR UNDERUTILISATION

The number of unemployed persons and the unemployment rate are widely used as measures of the extent of underutilisation of labour resources in the economy. While the ABS continues its commitment to producing labour force statistics based on internationally accepted definitions, it also recognises that the headline unemployment rate cannot satisfy all the purposes for which such data are required. The ABS provides a wide range of data on available labour resources and the extent of labour utilisation. Supplementary measures based on these data can be used to give a broader perspective on the meaning and measurement of unemployment, underemployment and underutilised labour.

To understand the structure and the dynamics of the labour market, the ABS releases a range of measures relating to labour underutilisation. The main measures are:

  • the unemployment rate, which is the percentage of people in the labour force who were not employed and were actively looking and available for work (or waiting to start a job within four weeks, that was unavailable until that time);
  • the underemployment rate, which captures those who are currently employed, but are willing and able to work more hours;
  • the labour force underutilisation rate, which combines the unemployment and underemployment rate, representing the percentage of the labour force that is willing and able to do more work. It provides an alternative, and more comprehensive, picture of potential labour market supply; and
  • the extended labour force underutilisation rate, which adds together the unemployed, underemployed plus two groups of people marginally attached to the labour force: persons actively looking for work, not available to start work in the reference week, but available to start work within four weeks; and discouraged jobseekers. This represents a broader measure of underutilised labour.


LABOUR UNDERUTILISATION: VOLUME OR HEADCOUNT MEASURES?

The ABS measures labour underutilisation using two approaches: counts and rates of people (headcount measures) and counts and rates of hours (volume measures). Headcount measures relate to the number people whose labour is not being fully used, and provide us with a picture of the extent to which people's aspirations for work are not being met, who as of a result may be suffering financially and personally. 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. Volume measures relate to the number of hours sought and additional hours preferred by individuals, or in other words, the number of potential hours of labour that are not being used. They provide us with a picture of the amount of additional capacity of hours in labour supply, and the potential to contribute to the production of goods and services. For this reason, volume measures of underutilisation are often more relevant for analysing the spare capacity of the labour force than headcount measures.

The annual volume measures of labour underutilisation have now been updated for August 2011 and are presented in this article and on the downloads tab. Data for the annual extended headcount measures are presented in the extended labour force underutilisation rate datacube of this publication.

VOLUME MEASURES OF LABOUR UNDERUTILISATION

Volume measures of labour underutilisation are compiled using information from the Labour Force Survey (LFS) and two labour force supplementary surveys: the Job Search Experience survey in July and the Underemployed Workers survey in September.

They are calculated by dividing the number of hours of underutilised labour in the labour force by the total potential hours in the labour force. Underutilised hours are comprised of:
  • for unemployed people: the number of hours of work sought;
  • for part-time underemployed people: the number of additional hours preferred; and
  • for full-time underemployed people (i.e. full-time employed people who worked less than 35 hours in the reference week for economic reasons): the difference between the number of hours usually worked and actually worked in the reference week.

The total potential hours in the labour force is the sum of the hours usually worked by all employed people, plus the number of hours of underutilised labour as described above. The three volume measures of labour force underutilisation produced by the ABS are summarised in Table 1 below. For a more detailed explanation of these measures please see the article 'Labour Underutilisation' in the July 2003 issue of Australian Labour Market Statistics. The extended labour force underutilisation rate is not produced as a volume measure, as information on the preferred hours of those marginally attached to the labour force is not collected.

1. ABS volume measures of labour force underutilisation
Measure Description
Volume unemployment rate The hours of labour preferred by unemployed persons, as a percentage of the volume of potential hours in the labour force.
Volume underemployment rate The additional hours of labour preferred by underemployed workers, as a percentage of the volume of potential hours in the labour force.
Volume labour force underutilisation rate The total volume of underutilised labour in the labour force (hours preferred by those in unemployment, plus additional hours preferred by those in underemployment), as a percentage of the volume of potential hours in the labour force.
Graph 1 shows the movements in the volume labour force underutilisation rate between August 2002 (7.9%) and August 2011 (7.1%). There was a steady decline in the rate between 2002 and 2008, when it fell from 7.9% to 5.3%. This trend is consistent with other measures, including the headcount measures of labour underutilisation, in suggesting a general tightening in the labour market over this period. The sharp increase to 7.8% in 2009 coincided with the global financial crisis, with increasing unemployment and underemployment both contributing to the rise in underutilisation.

While the volume labour force underutilisation rate has been consistently lower for males than for females over the ten years to August 2011, the decline for males (from 7.3% to 6.4%) has been proportionally greater than that for females (from 8.9% to 8.2%) over the same period.



COMPARISONS OF VOLUME AND HEADCOUNT MEASURES

Table 2 compares the volume measures of labour underutilisation with the corresponding headcount measures. In August 2011, around 11% of the labour force was underutilised. The potential labour of those 11% who were underutilised in August 2011, was around 450 million hours - which is just over 7% of the total potential hours in the labour force.

The volume unemployment rate in August 2011 was 0.7 percentage points lower than the headcount unemployment rate, while the volume underemployment rate was 4.1 percentage points lower than the headcount rate. Volume measures are usually lower than headcount measures, as the average number of potential extra hours of unemployed or underemployed people is generally less than the average hours actually worked by employed people.


2. MEASURES OF LABOUR UNDERUTILISATION, Selected headcount and volume measures - August 2011

Males
Females
Persons
%
%
%
Unemployment rate
Headcount measure
5.1
5.1
5.1
Volume measure
4.3
4.5
4.4
Underemployment rate
Headcount measure (a)
5.0
8.3
6.8
Volume measure
2.1
3.7
2.7
Labour force underutilisation rate
Headcount measure (a)
9.8
12.7
11.1
Volume measure
6.4
8.2
7.1

(a) To provide greater comparability with the volume measures, in this table data on the number of underemployed full-time workers are sourced from the Labour Force Survey rather than the Underemployed Workers Survey.
Source: Australian Labour Market Statistics (cat. no. 6105.0).

Unlike the headcount measures, volume measures take into account the number of hours worked or preferred by individuals and this has the effect of weighting people according to the number of hours they either worked or preferred. If the hours preferred by the unemployed and the underemployed were as high as those worked by the employed, then the headcount and volume measures would be of the same magnitude. However, this is generally not the case. For example, the large difference between the headcount and volume underemployment rates (6.8% and 2.7%, respectively) reflects the large difference between the usual hours worked by those employed (36.4 hours a week) and those preferred by the underemployed (14.8 hours a week).

Graphs 2 and 3 compare the headcount and volume unemployment and underemployment rates between 2002 and 2011, and show that the volume measure, whist lower than the headcount measure, tends to move in a similar pattern. Graph 2 shows the gap between the headcount and volume unemployment measure narrowing over time, from 1.1 percentage points in 2002 to 0.7 percentage points in each year from 2005, which was driven by an increase in the average number of hours sought by unemployed people.

Graph 3 shows that the headcount underemployment rate has been consistently higher than the volume unemployment rate for over a decade. This shows that, whereas the number of underemployed people are a significant proportion of the total number of persons with underutilised labour, the volume of additional labour offered by underemployed workers accounts for a much smaller proportion of the volume of underutilised labour; the additional hours sought may be as little as a few hours. As with the measures of unemployment, the headcount and volume measures of underemployment rose in 2009 as many firms responded to the global financial crisis by reducing people's work hours instead of laying off staff. While the headcount measure of underemployment increased by 1.9 percentage points, the volume measure increased by a lesser extent - just 0.9 percentage points. This reflects the increased number of full-time underemployed people over this period, who had a proportionally lower number of additional preferred hours than the continuing underemployed population (from September 2008 to September 2009, the proportion of full-time working males who were underemployed increased from 0.8% to 1.3%).





POTENTIAL LABOUR IN THE LABOUR FORCE

The volume of potential labour preferred by the different population groups contributing to the volume measures, as well as the volume measures of labour force underutilisation rates, are shown in Table 3. In August 2011, hours preferred by the unemployed continued to form the largest component of the volume labour force underutilisation rate, accounting for 61.9% of the volume of unutilised labour. For males, hours preferred by the unemployed formed more than two thirds (67.8%) of the male volume labour force underutilisation rate. About 79.9% of unemployed males were looking for full-time work, compared to 60.5% of unemployed females.

For females, the potential hours of labour are more evenly split between the unemployed and underemployed, with unemployed females accounting for 55.2% of the additional hours sought by females. The total volume labour force underutilisation rate is over 1.8 percentage points higher among females (8.2%) than males (6.4%).

3. VOLUME MEASURES OF LABOUR UNDERUTILISATION - August 2011

Males
Females
Persons

Volume of potential labour in the labour force

Unemployed persons (hours of work sought)
'000 hours
11 679.4
7 944.8
19 555.6
Looking for full-time work
'000 hours
5 500.2
3 416.9
8 841.7
Looking for part-time work
'000 hours
2 581.1
2 229.6
2 438.3
Underemployed workers (additional hours of work preferred)
'000 hours
5 552.8
6 453.3
12 025.9
Underemployed full-time workers(a)
'000 hours
1 408.3
227.8
1 636.1
Underemployed part-time workers
'000 hours
4 205.2
5 943.8
10 149.0

Total volume of underutilised labour in the labour force
'000 hours
17 232.2
14 398.1
31 581.5

Employed persons (usual hours of work performed)(b)
'000 hours
252 230.2
160 597.3
412 827.5
Full-time workers
'000 hours
233 740.5
115 122.55
348 863.0
Part-time workers
'000 hours
18 489.6
45 474.8
63 964.5

Total volume of potential labour in the labour force(c)
'000 hours
269 462.4
174 995.4
444 409.0

Volume measures of labour force underutilisation

Volume unemployment rate
%
4.3
4.5
4.4
Volume underemployment rate
%
2.1
3.7
2.7
Volume labour force underutilisation rate
%
6.4
8.2
7.1

(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) Actual hours worked in the reference week for underemployed full-time workers and usual hours worked for all other employed persons.
(c) Hours work preferred by unemployed persons, plus the total hours of work preferred by underemployed workers, plus the usual hours worked by employed persons who were not underemployed.
Source: ABS Australian Labour Market Statistics (6105.0).

Though underemployed workers want a significant number of extra hours of work, the volume of extra hours desired is generally less than the volume of hours desired by the unemployed reflecting that they are already contributing hours of work to the labour force. As a result, on an hours-adjusted or volume measure, unemployment may be seen as more important than underemployment. On average, unemployed people preferred 30.4 hours per week in August 2011, with males preferring 33.3 hours compared to 27.2 hours for females (Table 4). On average underemployed people preferred an additional 14.8 hours of labour per week, with males again preferring more hours (16.8 hours) than females (13.5 hours).

4. UNDERUTILISED LABOUR, Mean number of weekly hours preferred by selected groups - August 2011
Males
Females
Persons
hours
hours
hours
Unemployed persons (hours of work preferred)
33.3
27.2
30.4
Looking for full-time work
38.7
37.9
38.4
Looking for part-time work
18.8
19.4
19.2
Underemployed workers (additional hours of work preferred)
16.7
13.5
14.8
Underemployed full-time workers
24.0
18.3
23.0
Underemployed part-time workers
15.2
13.3
14.1
Source: Labour Force Survey, Australia (cay. no. 6202.0); Job Search Experience, Australia (cat. no. 6222.0): Underemployed Workers, Australia (cat. no. 6265.0)

FUTURE DEVELOPMENTS IN VOLUME MEASURES

From July 2013, the ABS intends to increase the frequency of the volume measures of labour from annual to quarterly, and change the source from the Job Search Experience and Underemployed Workers supplementary surveys to the LFS.

FURTHER INFORMATION

For further information on the concepts behind the volume measures, see the 'Experimental volume measures of labour underutilisation' article in the July 2003 issue of Australian Labour Market Statistics (cat. no. 6105.0).