Since the last recession in the early 1990s the unemployment rate has gradually declined. However, since the early 1980s the unemployment rate has been higher than was common in the 1960s and 1970s.

Paid work is the means through which many people obtain the economic resources needed for day to day living, for themselves and their dependants, and to meet their longer term financial needs. Having paid work contributes to a person's sense of identity and self-esteem. People's involvement in paid work also contributes to economic growth and development.

Many aspects of work affect people's wellbeing, such as hours worked, job satisfaction and security, levels of remuneration, opportunity for self development, and interaction with people outside of home. An ideal indicator of progress would reflect these and other aspects of work to measure the extent to which Australians' work preferences are satisfied.

While a single indicator covering all these aspects is not available, useful indicators of progress may be obtained by looking at the extent to which people's aspirations for wanting work, or more work, are unsatisfied. The official unemployment rate, which is the number of unemployed persons expressed as a percentage of the labour force, is a widely used measure of underutilised labour resources in the economy. This has been chosen as the headline indicator, because of its relevance to economic and social aspects of work.

Measures of underutilised labour such as the unemployment rate are sensitive to changes in the economy. For example, the unemployment rate is widely used as a key indicator of changing economic conditions across the business cycle.

In 1993 the annual average unemployment rate stood at 10.6% as a result of the economic recession in the early 1990s. Since then it has generally fallen, to stand at 6.7% in 2001. Broadly consistent measures of unemployment are available back to 1966. The unemployment rate has risen considerably since the late 1960s, when it averaged about 2% each year. There was a sharp increase from 2.3% in 1973 to 5.8% in 1981. Since 1981 the annual average unemployment rate has not fallen below 6%. Over this period there has been a consistent pattern to changes in the unemployment rate. It has tended to rise quickly during economic downturns and fall slowly during economic expansions.


ASSOCIATED TRENDS

People unemployed for long periods may experience greater financial hardship, and may have more difficulties in finding employment because of the loss of relevant skills and employers' perceptions of their 'employability'. The long-term unemployment rate is the number of persons who have been continuously unemployed for a period of 12 months or longer, as a percentage of the labour force. In 2001 the annual average long-term unemployment rate was 1.5%, compared with 4.0% in 1993 in the aftermath of the last recession. Movements in the long-term unemployment rate often lag movements in the total unemployment rate.

Movements in the 'extended labour force underutilisation rate', which provides a wider view of underutilised labour than the unemployment rate (see box above), also closely track the unemployment rate. The 'extended labour force underutilisation rate', which is only available on a comparable basis back to 1994, fell from 15.5% in September 1994 to 11.9% in September 2000.

EXTENDED LABOUR FORCE UNDERUTILISATION RATE The extended labour force underutilisation rate takes the measure of underutilised labour beyond what is conventionally measured in the labour force. The measure includes, in addition to the unemployed, people in underemployment and two groups of people with marginal attachment to the labour force, namely: persons actively looking for work, who were not available to start work in the reference week, but were available to start work within four weeks; and discouraged jobseekers. These are persons wanting to work who are available to start work within four weeks, and whose main reason for not looking for work was that they believed they would not find a job for labour market-related reasons. The rate is expressed by calculating the proportion of the people in, or marginally attached to, the labour force (as defined above) whose labour is underutilised. People who are unemployed and underemployed are defined as follows: Unemployed - persons who were not employed during the reference week, but who had actively looked for work and were available to start work in the reference week. Underemployed - persons working less than 35 hours a week who wanted to work additional hours and were available to start work with more hours.

SOME POPULATION GROUP DIFFERENCES

In a job market where there are too few jobs for all those actively seeking paid employment, it might be expected that groups with characteristics that are in low demand (e.g. people with low levels of educational attainment, limited relevant work experience, or in relatively poor health) would have greater difficulty in securing a job than those with more desirable attributes. Among the most disadvantaged groups in this regard are young people, older people with work experience in occupations that have declined in demand, and Indigenous Australians.

The extent of disadvantage for some of these groups is examined in more detail in the commentary Work: Looking more closely.


FACTORS INFLUENCING CHANGE

Factors that influence changes in indicators of labour underutilisation can be characterised as those related to the demand for labour and those related to its supply.

The demand for labour is strongly influenced by economic activity and therefore varies over the course of the business cycle. The demand for specific types of labour will also vary with structural change within the economy. For example, there may be a decrease in demand for workers who have the skills required for declining industries, and an increase in demand for those people with the skills needed in newer types of occupations.

Factors which affect the supply of labour also influence the indicators. Factors which influence the supply of labour include: population growth and immigration; the willingness of people to work; policies that affect levels of remuneration from work vis-a-vis income from the social security system (e.g. minimum wage, taxation and income support policies); attitudes to combining work and family responsibilities; early retirement; and participation in education and training.


LINKS TO OTHER DIMENSIONS OF PROGRESS

Work, and the economic and social benefits that flow from it, are important to the wellbeing of individuals and the broader community. The underutilisation of labour resources is a lost opportunity for producing goods and services, and income support and other services provided to assist the unemployed use government funds which could be used in other ways.

There are links between work or a lack of work and other aspects of progress. For example, studies generally suggest that unemployment is associated with crime, with poorer health, and with higher risks of poverty and lower levels of social attachment. (SEE FOOTNOTE 1) These associations tend to be stronger for those unemployed for longer periods of time. Reducing levels of unemployment may help to reduce the extent of these associated problems.

See also the commentaries National income, Education and training, Crime, Economic disadvantage and inequality, Social attachment, and Health.


FOOTNOTES

1 Borland, J. and Kennedy, S. 1998, "Dimensions, Structure and History of Australian Unemployment", in Borland, J. and Debelle, G. (eds), Unemployment and the Australian Labour Market, Proceedings of a Conference, Reserve Bank of Australia and Australian National University, Canberra.

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