EXPLANATORY NOTES

INTRODUCTION

1 The purpose of the Australian Labour Account is to support macro-economic analysis requiring data on peoples’ participation in paid employment and related production over time. Its development provides an opportunity to significantly improve the quality of aggregates such as the number of jobs occupied within each industry, measures of hours worked, and labour productivity growth.

2 The concepts and definitions underlying the Australian Labour Account are built on International Labour Organisation (ILO) fundamentals, and expands them to ensure consistency with the System of National Accounts (SNA08). The result provides a set of core macro-economic labour market variables derived through data integration, with both an industry focus and time series dimension.

3 The Australian Labour Account does not include analysis of persons, jobs, hours and payments by age or gender, as for most policy purposes these needs are adequately met from the existing Labour Force Survey, labour demand business surveys and Census publications produced by the ABS.

OUTPUT

4 The Australian Labour Account, in essence, is a system for compiling a set of core labour market statistics from existing data. The output is a set of tables that provide a systematic and consistent view of the core variables over time.

5 Labour Account statistics are arranged in four "quadrants": Jobs, Persons, Labour Volume and Labour Payments.

6 In the compilation process, residual differences remain between the estimated number of filled jobs based on business sources and those derived from household sources. These differences remain after making adjustments for known conceptual and scope differences. They represent measurement error in the respective sources, and are reflected in the "statistical discrepancy" series highlighted in the "unbalanced" tables. In the balanced tables, separate business and household estimates have been replaced by a single "filled jobs" estimate. Consequent adjustments are also made to estimates of employed persons, hours worked and hours paid for. The harmonised, or "balanced", filled jobs series are based on a more detailed industry by industry investigation of the underlying sources of measurement error. This process is ongoing, and the balanced tables reflect the current state of this work. Affected series are likely to be subject to further revision.

7 It is important to note that measurement error refers to the unavoidable sampling, non-sampling and modelling uncertainty, rather than a mistake or omission.

CONCEPTUAL SCOPE

8 Accounting conventions are necessary to define the scope and treatment of activities that occur within the economy. The production and residency conventions adopted in the Australian System of National Accounts (ASNA) are used in the Australian Labour Account to determine the scope of activities covered, and the size of the economy measured.

9 The scope of the Australian economy defined by these conventions embraces the activities of all enterprises resident within Australia's economic territory engaged in the production of goods and services, which fall within the scope of the National Accounts production boundary. The Labour Account relates to the employment of all persons in jobs created by those enterprises. In this context:

• an enterprise is a productive undertaking maintained and controlled by one or more households, corporations or "quasi-corporations" that are resident in Australia's economic territory, Enterprises include (for example):
  • businesses operated by unincorporated self-employed trades persons,
  • family operated farms,
  • large corporations such as the major commercial banks and supermarket chains,
  • Government departments and agencies like Centrelink and the ATO, and
  • schools and hospitals operated by the state, or by religious organisations and charities.

• the National Accounts production boundary embraces the production of all goods and services, with the exception of services produced by household controlled enterprises solely for consumption by the household itself. This exclusion relates to (for example) the cooking of meals for household members, household washing and cleaning and care of dependents. However, the "shelter services" provided by owner occupied dwellings are included within the production boundary.

• Australian economic territory includes all geographies under the control of the Australian Government, i.e. the Australian mainland, off-shore islands, Antarctic territories, Australian embassies and military establishments in other countries, and Australia's exclusive maritime economic zone. It excludes foreign embassies and military establishments in Australia.

• an enterprise is considered "resident" if the "economic interest" of its controlling institutional unit (household, corporation or quasi-corporation) is centred in Australian economic territory.

FRAMEWORK

10 The main objective of the Australian Labour Account framework is to incorporate labour input aggregates (persons, jobs, hours) which describe supply and demand in the labour market, as well as labour related payments (as income and as costs). The framework covers all types of employment including employees, self-employment and contributing family workers.

11 The Australian Labour Account provides a conceptual framework through which existing labour market data from different sources can be confronted and integrated, with the aim of producing a coherent and consistent set of aggregate labour market statistics.

12 The Australian Labour Account framework has been designed to conceptually align with the ASNA framework. This enhances compatibility with national accounts and productivity estimates.

13 Household side and business side data are confronted to help identify and address gaps and inconsistencies in the source data sets.

14 Data confrontation is the process of comparing data that has generally been derived from different surveys or other sources, especially those of different frequencies, in order to assess their coherency, and the reasons for any differences identified.

15 The Australian Labour Account framework has four distinct quadrants: Jobs, Persons, Labour Volume and Labour Payments. The four quadrants are linked by a set of identity relationships, which the aggregate statistics must satisfy.

16 Some relationships in the framework are direct:

• Employed Persons = Number of Main Jobs (at the total economy level)

17 Other relationships are considered indirect, such that the relationship is based on an average or ratio measure:

• Average Hours Worked per Job = Hours Actually Worked/Filled Jobs

Australian Labour Account: Identity Relationship Diagram



SCOPE ADJUSTMENTS

18 Adjustments for scope and conceptual differences between data sources are required in compiling the Australian Labour Account..

19 Scope adjustments are made in each of the four quadrants in the Australian Labour Account to ensure coherence.

20 Filled Jobs (business sources) is mainly based on summing estimates from two different business surveys. Data from a third source is added to account for employment in an industry division that was outside the scope of the primary sources. The following scope adjustments are made:

• add the number of persons from known industries excluded from primary business survey sources,
• add the number of persons employed in the permanent defence forces,
• add the number of unpaid contributing family workers,
• add the number of child workers who do not work for an employer as they are excluded from business surveys, and
• subtract the number of persons from specific industry subdivisions duplicated in primary sources to avoid double counting.

21 Scope adjustments made in one quadrant may be applied to another quadrant, and flow through to a third quadrant, based on the identity relationships.

22 Filled Jobs (household sources) is based on the number of jobs held by people employed in main jobs and secondary jobs sourced from the LFS, which is a household survey. Scope adjustments made to Filled Jobs (household sources) were similar to those made to Filled Jobs (business sources), to align the employed person estimates from the LFS with production boundary and residency concepts present in the business surveys. The following scope adjustments are made to Filled Jobs (household sources) to address LFS scope exclusions:

• add the number of persons employed in the permanent defence forces,
• add the number of child workers,
• add the number of main jobs held by non-resident visitors to Australia, and
• add the number of secondary jobs held by non-resident visitors.

JOBS

23 A job is a set of production related tasks that can be assigned to and undertaken by a person, and for which they are usually, but not necessarily, remunerated either in money or in kind. Jobs are created by enterprises. A "filled job" exists where an enterprise establishes explicit or implicit employment contracts with individual persons to undertake the job. Estimates of movements in the number of jobs in the economy provide a measure of labour market performance and capacity.

24 Defining a job is difficult. In the language used in national accounts, a job is an economic activity through which people engage in production. However, a dictionary definition is perhaps easiest to comprehend: a task or piece of work, especially one that is paid.

25 In the context of the Australian Labour Account, a job is a set of production related tasks that can be assigned to and undertaken by a person, and for which they are usually, but not necessarily, remunerated either in money or in kind.

26 The Jobs quadrant in the identity relationship diagram provides data on the number of jobs, both filled and vacant, including the number of main jobs and the number of secondary jobs.

27 In the "Balanced" Labour Account tables, employment estimates from business surveys are reconciled with employment estimates from household surveys to produce a single harmonised Filled Jobs time series. Detailed information on data sources and methods used to compile Jobs data is in the ABS Labour Account companion publication Australian Labour Account: Concepts, Sources and Methods (cat. no. 6150.0).

PERSONS

28 The size of the labour force is a measure of the total number of people in Australia who are willing and able to work. It includes everyone who is working or actively looking for work - that is, the number of people employed and unemployed together as one group.

29 The official measure of the population of Australia is based on the concept of usual residence. This concepts refers to all people, regardless of nationality, citizenship or legal status, with some exceptions. By convention, persons are considered to be "usually resident" if they have been or intend to remain in Australia for at least 12 out of 16 consecutive months.

30 The scope of the population in the Australian Labour Account includes all persons who contribute to Australian economic activity (as defined by the production and territory conventions of the ASNA), irrespective of their residency status.

31 There is not always a one-to-one relationship between jobs and people, insomuch as a job can be vacant, or one person can have more than one job. Therefore, the number of jobs in an economy will be greater than the number of persons employed.

32 Industry estimates for the unemployed population are based on industry of last job worked (within the last two years) from the Labour Force Survey, and do not necessarily equate to the industries in which the unemployed are currently seeking work, nor do they include those who have never held a job previously. As such, care should be exercised when interpreting estimates of unemployed persons (and therefore the total labour force) on an industry basis.

33 The Persons quadrant provides statistics on persons employed, persons looking for and available for employment, and persons with potential for further employment. Detailed information on data sources and methods used to compile Persons data is in the ABS companion publication Australian Labour Account: Concepts, Sources and Methods (cat. no. 6150.0).

LABOUR VOLUME

34 The Labour Volume quadrant describes the relationship between the hours of labour that are supplied by individuals and the hours of labour that are used or demanded by enterprises. It quantifies the number of hours worked by persons in all jobs. These data have a direct link to National Accounts and productivity statistics, as they are measures of labour input used in the production of goods and services.

35 Measuring changes in the level of hours worked for different groups of employed persons is important in order to monitor working and living conditions, as well as analysing economic cycles. Information on hours of work enables various analytical insights such as: classification of employed persons into full-time and part-time status; the identification of underemployed persons; and the creation of aggregate monthly hours worked estimates.

36 The Labour Force Survey is the primary source for household side hours worked data. Statistics relating to hours paid are based on business survey data, namely the ABS Survey of Employee Earnings and Hours, Australia (cat. no. 6306.0). Detailed information on data sources and methods used to compile Labour Volume data is in the ABS companion publication Australian Labour Account: Concepts, Sources and Methods (cat. no. 6150.0).

Derived items

37 The annual Average hours worked per job item is derived by using a flow measure (hours actually worked) divided by a stock measure (annual average level of filled jobs). Users are advised to take account of conceptual and scope differences when comparing these data with other estimates measured at the same point in time, such as average weekly hours.

LABOUR PAYMENTS

38 The Labour Payments quadrant accounts for the costs incurred by enterprises in employing labour and the incomes received by people from their labour provision. It can be described as the cost of labour, and reflects the interactions between jobs, persons and labour volume (hours worked).

39 The measure of total labour costs is based on the concept of labour as a cost to employers and includes wages and salaries, employers’ social contributions (typically superannuation and/or social insurance payments), and all other general employee costs borne by the employer such as training costs, use of recruitment services, payroll tax and so on. Any government subsidies, rebates or allowances for wage and salary payments paid to employees are deducted from employers’ labour costs.

40 Labour Payments data are primarily sourced from underlying data from two ABS National Accounts publications: Australian System of National Accounts (cat. no. 5204.0) and the Australian National Accounts: National Income, Expenditure and Product (cat. no. 5206.0). Detailed information on data sources and methods used to compile Labour Cost data is in the ABS companion publication Australian Labour Account: Concepts, Sources and Methods (cat. no. 6150.0).

Derived items

41 The annual Average labour income per person item is derived by using a flow measure (total labour income) divided by a stock measure (annual average level of employed persons). As such, users are advised to take account of conceptual and scope differences when comparing these data with other annual estimates measured at the same point in time, such as average weekly earnings.

SOURCES OF ERROR

42 After adjusting for conceptual and scope differences between data sources, a statistical discrepancy remains between the number of filled jobs as reported by businesses and the number of filled jobs as reported by households.

43 These discrepancies represent the cumulative impact of data source error, including survey error and modelling error. Survey error includes both sampling error and non-sampling error.

44 Sampling error is the predictable variability arising from the use of samples, rather than a complete enumeration of the populations of enterprises and households (i.e. a census). It refers to the difference between an estimate for a population based on data from a sample and the 'true' value for that population which would result if a census were taken.

45 Non-sampling error is caused by factors other than those related to sample selection. Non-sampling error can happen at any stage of a survey and can occur in non-survey data sources. An example of non-sampling error could be missing data or misclassification in government administrative records used directly in the Australian Labour Account. Error could occur in the industry classification of sponsored visa holders, or in the reported number of persons in the permanent defence forces.

46 Modelling error reflects errors embedded in the modelling assumptions used in the Australian Labour Account, for example in assuming that the proportion of children aged under 15 years who work has remained constant since 2006, or in assuming that quarterly Business Indicators, Australia (cat. no. 5676.0) employment movements accurately reflect quarterly change in the latest available annual data.

BALANCING THE AUSTRALIAN LABOUR ACCOUNT

47 In compiling the Labour Account, residual differences remain between the estimated number of filled jobs based on business sources and those derived from household sources. These differences remain after making adjustments for known conceptual and scope differences. They represent measurement error in the respective sources, and are reflected in the "statistical discrepancy" series highlighted in the "unbalanced" tables. In the balanced tables, separate business and household estimates have been replaced by a single "filled jobs" estimate. Consequent adjustments are also made to estimates of employed persons, hours worked and hours paid for. The harmonised, or "balanced", filled jobs series are based on a more detailed industry by industry investigation of the underlying sources of measurement error. This process is ongoing, and the balanced tables reflect the current state of this work. Affected series are likely to be subject to further revision.

48 In original terms the discrepancy between household sources and business sources was 274 thousand jobs, or 2%, in September 2017 quarter.




Adjustments to other quadrants

49 Adjustments made to filled jobs through this process have flowed through to two other quadrants in the Australian Labour Account: Persons and Labour Volume.

50 The number of employed persons was adjusted proportionally with adjustments to filled jobs, after taking account of the level of multiple job holding in the particular industry.

51 Any adjustments made to filled jobs on the household side had a corresponding adjustment to the number of hours worked. This adjustment was calculated by multiplying the adjustment to filled jobs, by the average hours worked in each industry.

52 Any adjustments made to filled jobs on the business side had a corresponding adjustment to the number of hours paid for. This adjustment was calculated by multiplying the adjustment to filled jobs, by the average hours paid for in each industry.

SEASONALLY ADJUSTED AND TREND ESTIMATES

53 More detailed information on the methods for deriving seasonally adjusted and trend estimates are described in Australian Labour Account: Concepts, Sources and Methods (cat. no. 6150.0).

54 Seasonal adjustment is a statistical technique that attempts to measure and remove the effects of systematic calendar related patterns including seasonal variation to reveal how a series changes from period to period. Seasonal adjustment does not aim to remove the irregular or non-seasonal influences, which may be present in any particular data series. This means that movements of the seasonally adjusted estimates may not be reliable indicators of trend behaviour.

55 It is important to note that the methods used in seasonal adjustment do not force the sum of the estimates for each quarter of a year to equal the original annual total.

56 Seasonally adjusted estimates have seasonal effects removed, but they still contain the irregular elements, which may be of particular interest when analysing industry data. The Labour Accounts methodology and confrontation framework has addressed some of the quarterly sampling variability that may be seen in a single survey source. As a result, the industry analysis in this publication has a greater focus on seasonally adjusted data, with the remaining irregular movements being reasonably indicative of the actual state of the labour market, rather than measurement error.

57 For analysis of the underlying behaviour of the labour market, the ABS recommends using trend estimates. These are produced using a statistical smoothing technique, in order to dampen the irregular element.

58 For more information about ABS methods for deriving trend estimates and an analysis of the advantage of using them over alternative techniques for monitoring trends, see Information Paper: A Guide to Interpreting Time Series - Monitoring Trends (cat. no. 1349.0) or contact Time Series Analysis by email at <Time.Series.Analysis@abs.gov.au>.

RELATED PRODUCTS AND PUBLICATIONS

59 For those who are less familiar with national accounts, as well as other newcomers to the field of national accounting, the United Nations provides an introduction to some basic concepts and structures of the SNA National Accounts: A Practical Introduction. This information is freely available from the UN Statistics Division web site. [https://unstats.un.org/unsd/publication/SeriesF/seriesF_85.pdf].

60 Eurostat, the statistical office of the European Union, provides similar introductory information on national accounts with its Building the System of National Accounts website[http://ec.europa.eu/eurostat/statistics-explained/index.php/Building_the_System_of_National_Accounts] as does the OECD’s Understanding National Accounts(http://www.oecd-ilibrary.org/economics/understanding-national-accounts_9789264027657-en).

61 Detailed information on the Australian System of National Accounts is available in the ABS publication Australian System of National Accounts: Concepts, Sources and Methods (cat. no. 5216.0).

62 Detailed information on the Australian Labour Account is available in the ABS publication Australian Labour Account: Concepts, Sources and Methods (cat. no. 6150.0).

63 Detailed information on the labour force and labour force statistics is available in the ABS publication Labour Statistics: Concepts, Sources and Methods (cat. no. 6102.0.55.001).