CHAPTER 6. UNEMPLOYMENT

INTRODUCTION

6.1 The labour force framework discussed in Chapter 2 categorises the population into three mutually exclusive groups: employed; unemployed; and not in the labour force. This chapter discusses in detail the concept of unemployment, and contrasts the measures of unemployment collected in the Labour Force Survey with those collected elsewhere. The chapter also discusses a range of classifications and measures that are related to unemployment.


CONCEPTS AND INTERNATIONAL GUIDELINES

6.2 The international definition of unemployment (Thirteenth International Conference of Labour Statisticians 1982) requires the simultaneous satisfaction of the following criteria:

• without work;
• actively seeking work; and
• currently available for work.
  

6.3 Unemployed people are therefore defined as people who, during a specified reference period, meet all of the above criteria. In surveys applying the international standards, the active job search criterion is waived for people waiting to start a new job that they have already obtained.


WITHOUT WORK

6.4 The purpose of the 'without work' criterion is to ensure that employment and unemployment are mutually exclusive. As precedence is given to employment, a person should only be classified as unemployed if they do not satisfy the criteria for employment. The 'without work' criterion refers to a total lack of work, that is, not in paid employment or self-employment, as defined in international standards for employment (refer to Chapter 3). People who are 'without work' should not have undertaken any work at all (not even for one hour) during the reference period, nor should they have been temporarily absent from a job to which they have a formal attachment.

6.5 There are other measures of labour underutilisation available to supplement the measures related to unemployment. See Chapter 5 for information on underemployment and Chapter 8 for information on measures of underutilised labour.


ACTIVELY SEEKING WORK

6.6 The 'actively seeking work' criterion requires that at least one active step to seek work (in either paid employment or self-employment) must be taken in the reference period. Active steps to seek employment include: "registration at a public or private employment exchange; application to employers; checking at worksites, farms, factory gates, market or other assembly places; placing or answering newspaper advertisements; seeking assistance of friends or relatives; looking for land, building, machinery, or equipment to establish own enterprise; arranging for financial resources; applying for permits and licences, etc." (Thirteenth International Conference of Labour Statisticians 1982). According to the definition, the job search period may be extended into the period prior to the basic reference period for the collection. The purpose of extending the job search period in this way is to take account of time lags which often follow initial steps to obtain work, and during which jobseekers may not take any other initiatives to find work (e.g. while waiting for outcomes of job applications). A four week reference period is suggested in the guidelines as the practical maximum for a monthly survey.

6.7 The international guidelines note that to be considered undertaking an active job search a person must have done something specific to obtain work before being classified as 'seeking work'. A general declaration of being in search of work is not sufficient.

6.8 The active job search criterion is waived for people waiting to start a new job that they have already obtained and that is to begin after the end of the reference period (these people are referred to as future starters (footnote 1). According to the international standards, future starters need only meet the 'without work' and 'available for work' criteria. The active search criterion is waived because, having already secured employment, people waiting to take up a job may not feel the need to look for work. The international guidelines consider that this group should be treated as unemployed rather than employed because, since they are available to start work, such people would presumably have started work had the job begun earlier and, as such, this group forms part of currently underutilised labour resources.

6.9 The international guidelines recommend that countries develop classifications of people not in the labour force according to the relative strength of their attachment to the labour market. People with marginal attachment include those people who are not in the labour force, wanted to work and were not actively looking for work but were available to start work within four weeks from the end of the reference period. See Chapter 7 for more information about marginal attachment.


CURRENTLY AVAILABLE FOR WORK

6.10 The availability criterion is a test of readiness to start work, to help ensure that a valid current stock measure of the labour supply is produced. In order to be classified as unemployed, people must be available to start work in the reference period. People not available to start work in the reference period (for example, because of impediments to taking up work such as family responsibilities, illness, etc.) should be excluded from estimates of unemployment. While the international standards recommend that the reference period for the availability criterion be the same as the basic reference period for the collection, the standards recognise that many countries prefer to extend the time period. Reasons for choosing a longer reference period include: the fact that not everyone who is seeking work can be expected to take up a job immediately when one is offered; and the fact that there are some forms of employment where workers are employed on a pay period basis and have to wait until a new pay period starts before taking up work.

6.11 The international guidelines recommend that countries develop classifications of people not in the labour force according to the relative strength of their attachment to the labour market. People with marginal attachment include those people who are not in the labour force, wanted to work and had actively looked for work (in the four weeks up to the end of the survey reference week) but did not meet the availability criterion to be classified as unemployed. See Chapter 7 for more information about marginal attachment.


DEFINITIONS USED IN ABS SURVEYS

6.12 The ABS produces estimates of unemployment from most household surveys. The Labour Force Survey is designed to produce precise estimates of unemployment (and employment), and the definition used aligns closely with the international definitions outlined above. In other household surveys where unemployment is an explanatory or classificatory variable the definition of unemployment is less precise than that used in the Labour Force Survey.


LABOUR FORCE SURVEY

6.13 Unemployed persons are defined as all persons aged 15 years and over who were not employed during the reference week, and:

• had actively looked for full-time or part-time work at any time in the four weeks up to the end of the reference week and were available for work in the reference week; or
• were waiting to start a new job within four weeks from the end of the reference week and could have started in the reference week if the job had been available then.

6.14 'Actively looking for work' encompasses a range of formal and informal job search activities and includes: writing, telephoning or applying to an employer for work; having an interview with an employer for work; answering an advertisement for a job; checking or registering with a Job Services Australia Provider or any other employment agency; taking steps to purchase or start up own business; advertising or tendering for work; and contacting friends or relatives.

6.15 People who only looked in newspapers or read job advertisements on the internet are seen as passively, rather than actively, looking for work and so are not considered unemployed. Similarly, just checking noticeboards is not considered an active job search step. The ABS view is that these steps in isolation do not meet the active search criterion. It is impossible to obtain work by looking at a job advertisement without some additional, active, job search step (for example, contacting the employer).

6.16 Future starters are those people who were not employed during the reference week, were waiting to start a job within four weeks from the end of the reference week, and could have started in the reference week if the job had been available then. Under International Labour Organisation (ILO) guidelines, future starters do not have to be actively looking for work in order to be classified as unemployed (see paragraph 6.8). Until February 2004, the Labour Force Survey definition of unemployed only included the subset of future starters who had actively looked for work in the four weeks to the end of the reference week. Hence, the Labour Force Survey treatment of future starters was not fully consistent with the ILO standards because the precondition of active job search was not waived, so that some future starters were defined as 'not in the labour force'. From February 2004, future starters who had not actively looked for work are classified as unemployed in the Labour Force Survey. Labour Force Survey estimates were revised back to April 2001 to reflect this change. This revision creates a small trend break at April 2001 in unemployed persons and unemployment rate series. For further information on this change, see pages 11 and 12 of Information Paper: Forthcoming Changes to Labour Force Statistics, 2003 (cat. no. 6292.0).

6.17 Different reference periods apply for defining not employed, availability to start work, job search, and waiting to start a new job. These are summarised in diagram 6.1. The short, one week reference period ('reference week') is used in defining those 'not employed', and in determining their availability for work, in accordance with the international guidelines. For active job search, a longer (four week) period that includes the reference week is applied. For future starters, a period of four weeks is used for the waiting period beyond the reference week in which the job will commence.



OTHER ABS HOUSEHOLD SURVEYS

6.18 To produce unemployment estimates, most other ABS household surveys use one of the two alternative questionnaire modules: the reduced questionnaire module (used for personal interviews); or the self-enumerated questionnaire module. As discussed above, unemployment is defined less precisely in these modules than in the Labour Force Survey.

6.19 Most Special Social Surveys use the reduced questionnaire module for personal interviews. Unemployment in this module is defined as people aged 15 years and over who were not employed during the reference week, but who had actively looked for work and were available to start work. Compared with estimates of unemployment from the Labour Force Survey, the reduced questionnaire module for personal interviews results in lower estimates of unemployment. This arises from the simplified treatment of certain categories of people:

• the reduced questionnaire module for personal interviews does not ask respondents about the reasons they did not actively look for work. Therefore, the reduced questionnaire module does not identify those 'future starters' who had not actively looked for work (see paragraph 6.16). When the reduced questionnaire module is used, these 'future starters' are classified as not in the labour force rather than as unemployed (about 3% of unemployed); and
• in the Labour Force Survey, people on workers' compensation 'last week' and not returning (or who do not know if they will be returning) to work, and people away from work for four weeks or more without pay, are classified as either unemployed or not in the labour force. Where the reduced questionnaire module is used, all people absent from work, but who usually work one hour or more a week, are classified as employed (about 0.8% of employed).

6.20 The self-enumerated questionnaire module used in the Census of Population and Housing also produces different estimates of unemployment when compared to the Labour Force Survey. Some differences result from the shortened set of questions, which cannot determine unemployment as precisely as the Labour Force Survey. Other differences result from the self-enumeration nature of the questions and the inevitable differences in interpretation among respondents. As a result, estimates of unemployment from the self-enumerated questionnaire module are best used as explanatory or classificatory variables to explain other phenomena, rather than for detailed analysis of the labour force itself.


DATA SOURCES

6.21 Unemployment estimates are available from:

• the Labour Force Survey;
• the Census of Population and Housing; and
• Special Social Surveys.

LABOUR FORCE SURVEY

6.22 The Labour Force Survey is the official source of Australian employment and unemployment statistics. The definition of unemployment used in the Labour Force Survey is outlined above. The Labour Force Survey uses a comprehensive and detailed set of questions to precisely measure the numbers and selected characteristics of people in employment and unemployment as well as people who are not currently economically active. Estimates from the Labour Force Survey are available by state/territory, capital city/rest of state, and for Labour Force Survey regions. (For more information on Labour Force Survey regions see the article Labour Force Survey regions, published in Australian Labour Market Statistics, Jul 2004 (cat. no. 6105.0)). Chapter 16 (paragraphs 16.34-16.48) provides more information on geographic classifications available from ABS household surveys. For more detail on the content and methodology of the Labour Force Survey see Chapter 20.


CENSUS OF POPULATION AND HOUSING

6.23 As discussed in paragraph 6.20, the Census of Population and Housing uses the self-enumerated questionnaire module to produce unemployment estimates that are consistent with the international standards. However, because the self-enumerated questionnaire module defines unemployment less precisely than the Labour Force Survey, the estimates produced are not strictly comparable with those from the Labour Force Survey. For this reason, unemployment estimates from the Census should be used with caution in analyses where labour force activities are a major focus. When comparing estimates of unemployment from the Census of Population and Housing with those produced from the Labour Force Survey, users should also note differences between the two surveys in scope (for example, the inclusion of permanent defence forces in Census employment data) and methodology. See Chapter 19 for more information on the Census of Population and Housing.


SPECIAL SOCIAL SURVEYS

6.24 As discussed in paragraph 6.19, the Special Social Surveys generally use the reduced questionnaire module to produce unemployment estimates consistent with the international standards. However, because the reduced questionnaire module defines unemployment less precisely than the Labour Force Survey, estimates produced are not strictly comparable with those from the Labour Force Survey. When comparing estimates from the Special Social Surveys with those from the Labour Force Survey, users should also note differences in scope and methodology across the collections.

6.25 Unlike most Special Social Surveys, the Survey of Employment Arrangements, Retirement and Superannuation (Chapter 23) and the Survey of Employment and Unemployment Patterns (Chapter 24), did not use the reduced questionnaire module to produce measures of unemployment as described above. Instead, these surveys used the full set of questions asked in the Labour Force Survey.


MEASURES OF UNEMPLOYMENT

UNEMPLOYMENT RATE

6.26 The unemployment rate for any group is defined as the number of unemployed people expressed as a percentage of the labour force (employed plus unemployed). As a measure of the proportion of the labour force that is underutilised, its most important use is as an indicator of the performance of the economy. A high rate of unemployment indicates limited employment opportunities in a labour market that is oversupplied. A low rate of unemployment indicates a tight labour market, potential scarcity of skilled labour, and future cost pressures from wage demands from workers.

6.27 The trend over time in the overall unemployment rate serves as an indicator of the performance of the economy, while the unemployment rate for different groups of people (e.g. younger people, older people, women) identifies areas of social concern when rates for some groups are much higher than for others.


DURATION OF UNEMPLOYMENT

6.28 Conceptually, duration of unemployment is the period of time during which an unemployed person has been in a continuous state of unemployment. To measure this period accurately would require that all three criteria for defining an unemployed person be satisfied continuously and simultaneously over the whole period (i.e. without paid work, actively looking for work and available to commence work). However, it is impractical to apply all three criteria to past periods in a household survey because of the lengthy and complex questioning needed to test for the criteria, and the memory recall difficulties of respondents. For this reason, in practice the measurement of duration of unemployment focuses on the period of time that a person has been without paid work, and/or has been looking for work.

6.29 Duration of unemployment is defined as the elapsed period to the end of the reference week since the time a currently unemployed person began looking for work, or since a person last worked, whichever is the shorter.


FURTHER INFORMATION

6.30 For further details contact the Labour Market Statistics Section, on Canberra (02) 6252 7206 or email <labour.statistics@abs.gov.au>

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