Beyond the unemployment rate: towards a more comprehensive method for measuring labour underutilisation.

Abstract

The official labour force statistics that are used in Australia have serious limitations. While appropriate for characterising the employment and unemployment situations of a labour market dominated by standard employment relations, however, they may now be inappropriate as standard employment relations no longer dominate the Australian labour market. Over the past 25 years, significant restructuring of both the economy and the labour market has occurred resulting in slower growth of full-time employment, a substantial increase in part-time work, a continued decline in the male labour force participation rate and a continued increase in the female participation rate. As a result, two serious problems emerged in the Australian labour market in the wake of the recession of the early-1990s, a substantial increase in both hidden unemployment and visible underemployment, which were not reflected in the official Australian measures of labour underutilisation, that is the seasonally adjusted unemployment rate and the trend unemployment rate. Up until the late-1980s, hidden unemployment and visible underemployment were not important sources of labour underutilisation in Australia, but they now contribute significantly to the level of labour underutilisation. Herein lies the problem that is the crux of this thesis. The growth in hidden unemployment and visible underemployment means that the official measures of labour underutilisation for Australia, the seasonally adjusted unemployment rate and the trend unemployment rate, no longer provide accurate estimates of labour underutilisation. In fact, they essentially only measure cyclical unemployment and frictional unemployment, which are the core forms of unemployment and joblessness associated with standard employment relations. Consequently, they no longer provide an appropriate basis for the development of employment, economic and social policy in Australia. New indicators are needed that yield better measures of labour underutilisation and hence provide a better basis for public policy. This thesis develops three new labour market indicators that are then used to re-examine the experience of the South Australian labour market over the period 1989 to 2005. The first section of the thesis provides a critical review of the official Australian Bureau of Statistics labour force indicators, and a range of alternative labour force indicators that have been developed since the 1990s. This discussion leads to the development of three new labour force indicators with the particular characteristic of providing broad accessibility for labour market analysts and policy makers including those who generally are not literate in econometric techniques. The second section uses these labour force indicators to re-examine, and re-interpret, the experience of the South Australian labour market over the period 1989 to 2005. The third section draws conclusions from this analysis, arguing in particular that the actual level of labour underutilisation in South Australia is about treble the level that is obtained from either the seasonally adjusted unemployment rate or the trend unemployment rate. Some key policy implications of this finding are then discussed.