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Understanding Potential Labour Supply
Total not working in a paid job – 7.38 million (36.7%)
WANTING TO WORK OR WANTING MORE HOURS
In February 2019, 1.98 million (9.8% of the population) wanted to work and were not currently working in a paid job. Of the remaining people who were not working, 56,000 were unable to work, but most simply did not want to work (4.84 million, or 24.0% of the population).
The main reason people did not want to work is because they were retired. 54.2% of those who did not want to work were retirees (2.62 million). Other people did not have time to work, such as students who were attending an educational institution (12.0%), those who were busy caring for children (4.2%) and those who had other duties around the home (12.1%). 7.0% had ill health or a disability that meant they were not seeking work. None of these people are included in the potential labour supply.
Based solely on people’s desire to work, 13.4% of the labour market were seeking employment (1.98 million wanting work as a proportion of the 14.72 million workers and potential workers).
Further to this, of those who usually work part-time hours, 1.14 million wanted to work more hours. These people were fairly evenly split between 54% wanting to work full-time and 46% just wanting more part-time hours. There are even some full-time workers who wanted to work more. 560,000 who usually worked full-time wanted to work even more hours.
The total number of workers who wanted more hours in February 2019 was 1.7 million (8.5% of the population). Based solely on this, the proportion of the labour market who wanted more hours was 11.6%.
Adding these two proportions together (13.4% and 11.6%), makes the total potential supply of underutilised workers 25.0% - a quarter of all workers and potential workers.
Why aren’t the headline figures this high? This brings us to the second important condition of labour supply – only counting those who were available to work.
Graph 2: Wants to work or wants more hours
Total wanting work – 3.68 million (18.3%)
Does not want to work – 4.84 million (24.0%)
Unable to work – 560,000 (2.8%)
Main activity of people who do not want to work
AVAILABLE TO WORK
Not everyone who wants to work is available to work, and this therefore limits their ability to supply their labour. Of the 1.98 million people who wanted to work, 1.27 million were available to start working straight away, while 420,000 would be available in the next 4 weeks. The remaining 289,000 wanted to work, but were not available within 4 weeks.
There were many reasons why people are not available to work. The main reason was because they were busy caring for children (24.2%). Other reasons included studying or returning to studies (18.5%), a long term health condition or disability (17.9%) or caring for an elderly person or relative (7.7%). Similarly to those who do not want to work, these people who are unavailable to work are not included in the available labour supply.
Based on these two conditions of wanting and being available to work straight away, the proportion of available workers who were seeking work would be 9.1%.
Similarly, there were fewer workers who were both wanting and available to work more hours. Of the part-time workers, 1.07 million were available to work more hours, and 534,000 full-time workers were available for more hours.
This brings the total to 1.6 million workers who were available and wanted to work more hours, or 11.4% of all available workers. Combing these ratios results in a figure of 20.5% of the population that was willing and available to work.
Again, these numbers are higher than the headline underemployment and underutilisation rates. There is a third and final important condition for labour supply – only counting those who were actively looking for work.
Graph 3: Wants to work and available
WANTING AND AVAILABLE TO WORK
Total available workers who wanted work – 2.87 million (14.3%)
Wants to work and available in 4 weeks – 420,000 (2.1%)
Wants to work but not available – 289,000 (1.4%)
Main reasons people are not available to work in 4 weeks
ACTIVELY LOOKING FOR WORK
Businesses looking for workers can only find job seekers when they actively make contact, either through applying for vacant positions, making phone calls, registering with an employment agency, or a number of other active steps. Therefore, in order to be part of the potential labour supply to be utilised in the Australian economy, a person must be actively looking for a job. Passively looking for work may be a precursor to someone looking for work, but it is the active steps taken to find work that will lead to their labour supply being available to employing businesses.
In February 2019, 640,000 were actively looking for work and were available to start immediately. Another 58,000 were actively looking and available to start within 4 weeks. 860,000 were wanting to work and available to start within 4 weeks, but they were not actively looking for work. 160,000 were not actively looking because they had either already accepted a job offer but had not yet started working, or they were attached to a job and away from work without pay.
The main reasons people did not actively look for work was because they were attending an educational institution (25.3%) or caring for children (17.9%). Some people did not actively look for work due to a long-term health condition or disability (8.9%). Other people had simply given up looking for work and are classified as “discouraged job seekers.”
There were 90,000 discouraged job seekers in February 2019, and most believed they could not find work because employers thought they were too young or too old (32%), or that there were no jobs available in their locality, their line of work, or just no jobs available at all (26%).
When using all three conditions of wanting to work, being available to work, and actively looking for work, a measure of unemployment can be calculated at around 4.8% of the actively participating labour force.
We can also apply the same criteria to those looking for more hours, but, given underemployed workers can get extra hours within their existing employment, it is not considered to be a reasonable limitation on underemployment. They are already meeting the requirement for being “economically active” by being employed and it would be unreasonable to expect underemployed workers to keep asking their employer for more hours every month or continuously apply for new jobs to be counted as underemployed from one month to the next.
Graph 4: Available and looking for work
AVAILABLE AND ACTIVELY LOOKING FOR WORK
Wants to work, available, and actively looking for work – 640,000 (3.2%)
Total underemployed part-time workers – 1.02 million (5.1%)
Not looking, but has a job to start or return to – 160,000 (0.8%)
Wants to work, available in 4 weeks, and actively looking for work – 58,000 (0.3%)
Wants to work, available in 4 weeks, but not looking for work – 860,000 (4.3%)
Main reasons not actively looking for work
The ABS uses combinations of these conditions to determine headline rates of potential labour supply and underutilisation over time, which are consistent with international standards. On the rare occasions that a standard is changed, the ABS can draw upon the wealth of information collected to revise and maintain a consistent time series.
The headline unemployment numbers are based on those people who are not employed who met all three conditions: wanting to work, available to work and actively looking for work. It also includes people who have stopped actively looking for work because they have accepted a job offer, but have not started working yet. In February 2019, there were 677,000 unemployed people.
The headline number of underemployed part-time workers are based on two conditions, wanting more hours and also being available to work more hours. It does not require underemployed workers to actively look for work. There were 1.02 million underemployed part-time workers in February 2019.
The headline number of underemployed full-time workers are not based on the conditions explored so far. A full-time worker is considered underemployed if they involuntarily work part-time hours for “economic reasons”, such as not having enough work or being stood down by their employer. It does not include workers who lost hours due to illness, plant breakdowns or bad weather, as these are not considered to be economic reasons. In February 2019, there were 83,000 full-time workers who were underemployed.
The total labour force includes everyone who is employed and unemployed. It does not include those who do not want to or were unable to work, or those who were unavailable to start work straight away, or those who were not actively looking for work. The size of the labour force in February 2019 was 13.4 million.
Based on these classifications, the PJSM data indicates that the underutilisation rates for February 2019 were:
Graph 5: Underutilisation
Note that while the labour force categories are arranged neatly in a line from “least employed” to “most employed,” the reality of labour market dynamics means that people can shift between any of these categories. A part-time worker does not need to be underemployed before becoming unemployed, they could go straight into not in the labour force after losing their job. Before they even start looking for work, they could get a full-time job and bypass unemployment and go straight into employment.
Beyond the commonly cited headline measures of labour supply and underutilisation, the ABS also periodically produces an alternative set of broader measures that relax some of these conditions around unemployment and underemployment.
An extended measure of unemployment starts with the official definition and extends the availability criteria to include those who are available to start within 4 weeks, rather than only counting those who can start immediately. It also includes discouraged job seekers, as they meet all of the criteria for unemployment except for actively looking for work. It does not include people who were not actively looking for other reasons, such as studying or caring for children. The number of people who meet the extended measure of unemployment in February 2019 was 825,000.
The extended measure of underemployment applies the same lens to both full-time and part-time workers. Regardless of usual hours worked, a worker is underemployed if they worked less than their usual hours for economic reasons, or if they preferred and were available to work more hours.
Using this measure, there was an extra 550,000 full-time workers who were underemployed, as they either preferred and were available to work more full-time hours, or they worked less full-time hours than usual for economic reasons. The total number of underemployed full-time workers under the extended definition was 640,000 in February 2019.
The number of underemployed part-time workers also increased under the extended definition, including part-time workers who worked less part-time hours than usual hours for economic reasons. The total number of underemployed part-time workers was 1.17 million in February 2019 under the extended definition.
The extended measure of the labour force combines the employed and the extended measure of unemployed. It also includes some people who would normally be counted as not in the labour force, but had a job that they were either starting in the future or one they would return to after a period of leave without pay. The size of the labour force under this extended definition was 13.7 million in February 2019.
Using these more relaxed measures, the extended underutilisation rates in PJSM for February 2019 were:
Updated tables of the extended rates of underutilisation by Sex, Age, and State and Territory for the period 2015 to 2019 are available in Downloads.
Graph 6: Extended Underutilisation
For more information on these on any other labour statistics, contact the ABS Labour Statistics branch via email@example.com.
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