VOLUME MEASURES OF LABOUR UNDERUTILISATION


INTRODUCTION

Volume measures of labour underutilisation are produced on an annual basis. The ABS has recently made changes to the reference period for these volume measures, and the method used to produce them. This article provides a brief discussion of these changes and provides a comparison of the data on the old and new basis. Volume measures for the period August 2002 to August 2008 are provided with this issue of Australian Labour Market Statistics (cat. no. 6105.0), in a spreadsheet (table 1.2). More detailed information on the concepts underpinning the volume measures is available from the article 'Experimental volume measures of labour underutilisation', which was published in the July 2003 issue of this publication.


VOLUME MEASURES AND HEADCOUNT MEASURES

The ABS measures labour underutilisation using two approaches. Measures such as the headline unemployment rate are based on counts of people (headcounts), and indicate the proportion of the population whose labour is underutilised. In addition to these headcount measures, the ABS also produces volume measures of labour underutilisation, which are based on the hours of available labour that are unused. These hours-based measures are valuable in analysing and utilising spare capacity within the labour force.

Volume measures are calculated by dividing the number of hours of underutilised labour in the labour force by the potential hours in the labour force. Underutilised hours are comprised of:

• The number of hours of work sought by unemployed people
• The number of additional hours preferred by part-time underemployed people
• 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.

Potential hours in the labour force refers to the sum of hours sought by unemployed people, additional hours preferred by underemployed people working part-time, and the hours usually worked by all employed people.

Descriptions of the three main rates are given in table 1 below.

1. ABS volume measures of labour force underutilisation
Measure	Description
Volume unemployment rate	The hours of labour sought by unemployed people, as a percentage of the potential hours in the labour force.
Volume underemployment rate	The additional hours of labour preferred by underemployed workers, as a percentage of the potential hours in the labour force.
Volume labour force underutilisation rate	The total volume of underutilised labour in the labour force (hours sought by unemployed people, plus additional hours preferred by underemployed people), as a percentage of the potential hours in the labour force.
Note: Potential hours in the labour force refers to the sum of hours sought by unemployed people, additional hours preferred by underemployed people working part-time, and the hours usually worked by all employed people.

Table 2 below shows volume measures and headcount measures for August 2008. 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. For instance, the volume unemployment rate was 0.7 percentage points lower than the headcount unemployment rate. The volume underemployment rate was 3.6 percentage points lower than the headcount rate.

2. Comparison of volume measures and headcounts measures
	Volume measure, August 2008(a)	Headcount measure, August 2008(b)
	%	%
Unemployment rate	3.2	3.9
Underemployment rate	2.1	5.7
Labour force underutilisation rate	5.3	9.6
(a) Source: Australian Labour Market Statistics (cat. no. 6105.0) Datacube 1.2, Oct 2009
(b) Source: Australian Labour Market Statistics (cat. no. 6105.0) Datacube 1, Jul 2009

RECENT CHANGES TO OTHER UNDERUTILISATION MEASURES

There have been a number of recent changes to other measures of labour underutilisation. The ABS recently introduced a quarterly Labour Force Underutilisation Rate (LFUR) to replace the annual LFUR. The quarterly rate uses data solely from the LFS, rather than data from both the LFS and the annual Underemployed Workers survey. For more information, see the article 'Quarterly Labour Force Underutilisation Rate' in the July 2008 issue of this publication.

The ABS also recently made changes to the Extended Labour Force Underutilisation Rate (ELFUR). The reference period for the ELFUR was changed from September to August and the LFS became the principle source for underutilisation data, in conjunction with Persons Not in the Labour Force survey, to align with the LFUR. For more information, see the article 'Extended Labour Force Underutilisation Rate' in the July 2009 issue of this publication.


CHANGES TO VOLUME MEASURES

The reference month of the volume measures has been changed from September to August, in order to align with other measures of labour underutilisation. In order to produce volume measures in respect of August it has been necessary to change the way in which the data sources are used.

Volume measures are calculated using information from the LFS and two labour force supplementary surveys. Information on hours that unemployed people have sought comes from the Survey of Job Search Experience (JSE), while the Survey of Underemployed Workers (UEW) provides information on the additional hours that underemployed working part-time would prefer to work - the only regular sources of these components. These two surveys are conducted annually (in July and September respectively) and results are published in Job Search Experience, Australia (cat. no. 6220.0) and Underemployed Workers, Australia (cat. no. 6265.0). Information on additional hours preferred by full-time underemployed people comes from the LFS.

Previously, July JSE data was used to calculate hours sought by unemployed people for September. Factors were calculated by dividing the number of hours sought by unemployed people by the number of unemployed people counted in the July JSE survey. These factors were then applied to the LFS estimates of the number of unemployed people for September to produce a synthetic estimate of the number of hours sought by unemployed people in September. This approach has been changed so that the factors derived from the July JSE survey are now applied to the August LFS estimates.

The method of estimating underutilised hours of underemployed people differs for those working part-time and those working full-time. Additional hours preferred for people working part-time are sourced from the September UEW survey. Similar to the method used for unemployed hours, factors are calculated by dividing the number of hours preferred by part-time underemployed people by the number of part-time underemployed. These factors are then applied to LFS estimates of the number of part-time underemployed people for August. Previously, part-time underemployed hours were calculated using September UEW without reference to the LFS.

Information on underutilised hours of full-time underemployed people is sourced directly from the August LFS, whereas previously this information was sourced from September LFS.

Estimates using the new approach have been compiled from August 2002 onwards and replace the previous time series. In addition, data are also now available by age.


COMPARISON OF RATES

The following graphs illustrate the changes to the three rates over time, as a result of the introduction of the August series. The difference in the underemployment rate (and consequently the labour force underutilisation rate) between the September and August series is largely attributable to the larger number of part-time underemployed people identified in the August LFS compared with the September UEW. For more information on the differences between August and September underemployed estimates, see the article 'Quarterly Labour Force Underutilisation Rate' in the July 2008 issue of this publication.

FURTHER INFORMATION

For further information, please contact Ian Appleby on (02) 6252 7181 or email <ian.appleby@abs.gov.au>.