SPOTLIGHT: PROPORTION OF VACANT JOBS - A NEW WAY TO ANALYSE THE LABOUR MARKET

The Beveridge Curve is widely used to depict the relationship between the unemployment rate and the job vacancy rate. While the Beveridge Curve can be constructed at the total economy level, it cannot be plotted for individual industries. The recently published Australian Labour Account provides a set of core macro-economic labour market variables at division level quarterly and subdivision level annually. This spotlight presents the Australian Beveridge Curve and introduces a valuable new labour market measure made possible by the Labour Account - the Proportion of Vacant Jobs.

BEVERIDGE CURVE

The Beveridge Curve is used to map the relationship between the unemployment rate and the vacancy rate. The characteristics and location of the curve can demonstrate the position of the economy in the business cycle. During an economic downturn, when the job creation process is less prominent than the job destruction process, a downward movement along the Beveridge Curve is usually observed, corresponding to higher unemployment and lower vacancies. In contrast, a period of economic recovery tends to show an upward movement.

PLOTTING THE BEVERIDGE CURVE

The Beveridge Curve is plotted using the following parameters:







Figure 1: Beveridge curve

Source: Vacancy rate calculated using Labour Account Australia, Quarterly Experimental Estimates (cat: 6150.0.55.003); Unemployment rate from Labour Force, Australia (cat: 6202.0)


The Beveridge Curve shows an inverse relationship between the vacancy rate and the unemployment rate over the period between 2010-11 and 2013-14. During this period, the vacancy rate decreased and the unemployment rate increased in the Australian labour market. Since 2014-15, the job vacancy rate has started to increase. However, a subdued change in the unemployment rate, relative to the increased vacancy rate, has resulted in an outward shift of the Beveridge Curve.

An outward shift of the curve can be caused by any or a combination of the following factors:

• Decreased matching efficiency between labour supply and demand;
• Increased prevalence of skill mismatches;
• Increased participation;
• Higher share of long-term unemployed; or
• Increased job churn.
  

The Beveridge Curve can only be assessed at the total economy level when analysing changes and conditions of the labour market, given the limitation around defining an unemployment rate for an industry (that is, through assuming that the next job for an unemployed person will be in the industry that they most recently worked in).

The recently released quarterly Australian Labour Account enables analysis of the Australian labour market at the industry level by providing jobs data for each ANZSIC division quarterly and each subdivision annually. To take account of the limitation of the Beveridge Curve and to allow for industry level analysis, this spotlight introduces a new measure that uses the recently released Labour Account data.

LABOUR ACCOUNT JOBS

The Australian Labour Account provides data on the number of jobs, both filled and vacant. Filled jobs capture main jobs and secondary jobs providing a comprehensive picture of the dynamics of the labour market. Job statistics are compiled for each ANZSIC Industry subdivision, division and for the economy as a whole. Generally the following methods are applied to all levels of aggregation:

Figure 2: Australian Labour Account identity relationship - Jobs


The Australian Labour Account total jobs data enables the analysis of the proportions of vacant jobs (PVJ) in the economy and its relationship to other major economic indicators. The PVJ measure is calculated as the number of vacant jobs as a proportion of total jobs for a given industry. For the period between 2010 and 2013, the fall in total PVJ was accompanied by a rise in the unemployment rate. Since 2014, the PVJ has been increasing while the unemployment rate has been steady.


Figure 3: Unemployment rate and proportion of vacant jobs - Seasonally adjusted

Source: Labour Account Australia, Quarterly Experimental Estimates (cat: 6150.0.55.003); Unemployment rate from Labour Force, Australia (cat: 6202.0)

Analysing the PVJ along with the number of employed persons can provide an in-depth picture of labour market dynamics. The relationship between the PVJ and employed persons can be observed in the following graph. Falling PVJ was accompanied by subdued employment growth during the period between 2010 and 2013. Since 2014, employment growth has accelerated with the rise of PVJ.


Figure 4: Proportion of vacant jobs versus employed persons

Source: Labour Account Australia, Quarterly Experimental Estimates (cat: 6150.0.55.003)

The following are some illustrative examples of industries that show the value of the PVJ measure.

Mining

PVJ for the mining industry reached its peak during 2011-2012. This was followed by a fall in the job vacancies as the mining industry made the transition to the production phase from the investment phase. Gross fixed capital formation for the mining industry increased during the same period as the PVJ, reaching its highest level in 2012-13 before declining afterwards (Figure 6).


Figure 5: Proportion of vacant jobs in Mining

Source: Labour Account Australia, Quarterly Experimental Estimates (cat: 6150.0.55.003)

Over the past few years since 2015, the number of employed persons along with PVJ provide an indication of a post-boom softening in the mining industry. In comparison to the mining boom period, both PVJ and employed persons have either fallen or remained flat for all of the mining subdivisions, highlighting the more subdued demand for labour, compared to earlier periods of growth.


Figure 6: Gross fixed capital formation in Mining and Construction

Source: Australian Industry, 2015-16 (cat: 8155.0)


Figure 7: Employed persons in Mining

Source: Labour Account Australia, Quarterly Experimental Estimates (cat: 6150.0.55.003)

Health care and social assistance

The PVJ for the Health care and social assistance industry was relatively flat over the five year period between 2010-11 and 2014-15. In recent years, the aging Australian population, the roll out of the National Disability Insurance Scheme, as well as the increased use of formal childcare services (figure 9), have contributed to increased labour demand in this industry, with increases in the PVJ seen across three of the four sub-divisions.


Figure 8: Proportions of vacant jobs in Health care and social assistance

Source: Labour Account Australia, Quarterly Experimental Estimates (cat: 6150.0.55.003)


Figure 9: Number of children attended formal and informal care

Source: Childhood Education and Care, Australia (cat: 4402.0)

Since 2014-15, subdued employment growth in the Medical & other health care services subdivision along with an increased PVJ could potentially indicate a tightening labour market with strong labour demand, increased job churn or increased shortages of people with particular skills.


Figure 10: Employed persons in Health care and social assistance

Source: Labour Account Australia, Quarterly Experimental Estimates (cat: 6150.0.55.003)

Professional scientific and technical services

The PVJ increased for the Professional scientific and technical services division from 2010-11 to 2011-12, which coincided with increased capital expenditure in mining and construction, and demand for professional services in these industries. In recent years, the PVJ has stabilised for subdivision 69, fluctuating between 1.8 per cent and 2.0 per cent.


Figure 11: Proportion of vacant jobs in Professional, scientific and technical Services

Source: Labour Account Australia, Quarterly Experimental Estimates (cat: 6150.0.55.003)

Consistent with a high PVJ during the period between 2010-11 and 2011-12, the number of employed persons increased for subdivision 69. In recent years, even though the PVJ has been steady for subdivision 69 and has declined for subdivision 70, the number of employed persons increased for both subdivisions. This might indicate an increased number of contractors, a changing mix of workers as mining moves to production, or that the matching efficiency of recruitment processes has kept pace with increasing demand.


Figure 12: Employed persons in Professional scientific and technical services

Source: Labour Account Australia, Quarterly Experimental Estimates (cat: 6150.0.55.003)

Education and training

Since 2015, the PVJ increased for all three subdivisions in the Education and training industry, fuelled by increasing growth in the school aged population, growing demand from international students, and an increased demand for adult and community education.


Figure 13: Proportion of vacant jobs in Education and training

Source: Labour Account Australia, Quarterly Experimental Estimates (cat: 6150.0.55.003)

Despite a strong increase in the PVJ, employment growth in Tertiary education has remained noticeably subdued. This might suggest a supply shock with higher employee turnover in this subdivision, the impact of skill shortages, or the matching efficiency. This might also be a consequence of higher participation in distance education.


Figure 14: Employed persons in Education and training

Source: Labour Account Australia, Quarterly Experimental Estimates (cat: 6150.0.55.003)

This spotlight has shown the value of the PVJ as a key labour market measure. By compiling quarterly data at division level and annual data at subdivision level, the Australian Labour Account provides new insights into the complex interplay between supply and demand within the labour market.