Australian Labour Account concepts

The conceptual framework of the Australian Labour Account is based on the standards set out in the Australian System of National Accounts, Concepts Sources and Methods, Australia, 2015 (ABS cat. no. 5216.0), referred to as the ASNA. The ASNA generally conforms to the internationally agreed conventions described in the United Nations’ international standard System of National Accounts 2008 (2008 SNA). Some minor variations have been adopted to allow for particular Australian data supply conditions or user requirements, and these are noted at appropriate points throughout this manual.

Production boundary

Accounts compilation uses some important boundaries to define the scope and treatment of events that occur within the economy. These boundaries are: the production boundary defining the scope of productive economic activity; the asset boundary distinguishing transactions in assets from income and expenditure; and the boundary between current and capital transfers (IMF, 2007, The system of macroeconomic accounts statistics: an overview, Pamphlet series no. 56).

The definition of the production boundary used in the Australian Labour Account determines the scope of activities covered, and the size of the economy measured in the account.

The Australian Labour Account includes all persons employed in economic activity as defined by the 2008 SNA. Economic activity is the production of goods and services falling within the 2008 SNA production boundary by institutional units resident in the Australian Economic Territory. In the 2008 SNA, production is viewed as a physical process in which labour and assets (capital) are used to transform inputs of energy, materials and services into outputs of other goods and services.

In its simplest form, economic activity is the production of goods and services, and in the 2008 SNA is always a result of production (ASNA, 2.8).

Economic activity covers all market production and certain types of non-market production, including the production and processing of primary produce by households for their own consumption (e.g. vegetable gardens, fruit trees or eggs from chickens), the construction of dwellings and structures for own use, the production of fixed assets for own use and the production of dwelling services from owner occupied homes (see Figure 4.1).

Figure 4.1: Scope – economic activity in terms of 2008 SNA concept of goods and services production

Source: Hussmanns, R., Mehran, F., Verma, V., Surveys of economically active population, employment, unemployment and underemployment: An ILO manual on concepts and methods, Geneva, International Labour Office.
http://www.ilo.org/wcmsp5/groups/public/---dgreports/---stat/documents/publication/wcms_215885.pdf

While the 2008 SNA definition of the production of goods and services covers a wide range of activities, many other activities still remain outside its scope. For example, the production of domestic and personal services for consumption within the same household (such as preparing meals and caring for children) is excluded. The production of most domestic and personal services is excluded, as the decision to consume these services within the household is made even before the service is provided, and because of the adverse effects their inclusion would have on the usefulness of the accounts for policy purposes and analysis of inflation and unemployment. The extension of the production boundary to include own account household services would result in virtually the whole adult population being defined as 'economically active', unemployment under the existing International Labour Organisation (ILO) definition would cease to exist, and employment statistics would become meaningless (2008 SNA, 1.42, 6.31; ASNA, 8.3).

One exception is the production of dwelling services from owner occupied housing. This is a pragmatic compromise required to allow comparison of economic activity between countries with significant differences in rates of home ownership. However, no labour input is associated with this activity.

Unpaid work and volunteer services

A distinction can be made between those who have an agreement to provide labour for token remuneration or income in kind, those for whom there is explicitly no remuneration, and those where there is apparently no remuneration but the workers benefit directly from the output to which they contribute. In ILO statistics, all three types of worker are included in the economically active population as employees.

In the 2008 SNA, the remuneration of those working for token amounts or only income in kind is measured by these costs. No imputation for an additional element of remuneration is included. For example, if doctors or teachers work for only food and lodging, the value of this as income in kind is the only remuneration imputed to them. Such instances may arise in religious institutions, or in the wake of natural disasters. If the unit employing these staff is responsible for whatever little remuneration is received, these people are classed as employees and included in the scope of the Australian Labour Account.

If staff are purely voluntary, with no remuneration at all, not even in kind, but are working in a recognised institutional unit (business, government agency, not-for-profit organisation) engaged in economic activity, then these individuals are still regarded as being employed in 2008 SNA terms. As they are not paid, there is no related compensation of employees recorded for them. Individuals providing services to groups of other individuals, such as coaching a children’s sports team, without any associated infrastructure, are not regarded as employed but rather engaging in a leisure pursuit (2008 SNA, 19.37 - 19.39).

Although they fall within scope of the 2008 SNA, the Australian Labour Account does not include estimates of numbers of persons engaged by institutional units on a purely voluntary basis. This is consistent with the current treatment in the ASNA, which unlike the 2008 SNA does not allow for the measurement of voluntary contributions of labour.

If family members contribute to the output of an unincorporated enterprise, the estimate of mixed income is assumed to include an element of remuneration for them, and thus they are all treated as being in the economically active population from a 2008 SNA point of view (2008 SNA, 19.40). The Australian Labour Account includes estimates for contributing family members, consistent with the 2008 SNA.

Figure 4.2 below summarises in scope activities within the ASNA.

Figure 4.2: In scope activities within the ASNA

1. Activities of all employees remunerated in cash or in kind, including domestic paid employment.

2. Activities of employers, own account workers, members of producers' cooperatives and contributing family workers in units producing goods or services for the market. All activities in this category occur in household unincorporated market enterprises. Some goods or services produced may be consumed by the household. Includes the production of goods or services that are exchanged for other goods or services (barter). Includes self-employed workers rendering paid/remunerated domestic services to households.

3. Self-employment work in own household or another household with family ties that produces goods mainly for own final use. Considered in employment if such production comprises an important contribution to the total consumption of the household. A household with family ties relates to a household of which at least one member belongs to the family of the worker.

4. Illegal activities, despite a likelihood of being under-reported, are included in the scope of economic production in the ASNA if they are reported by businesses. These activities involve transactions between two parties, for example payments to employees below minimum rates or activities conducted without necessary permits or licenses.

5. Unreported transactional illegal activities are outside the scope of production in the ASNA. These activities include, for example, supply and purchase of illegal goods.

6. Volunteer work is performed without pay to advance a cause or produce a benefit that primarily helps someone other than one’s own household or family. Volunteer work may be carried out in units that produce goods or services. Such units may be market enterprises, non-market organisations or households with no family ties that produce for own final use.

7. Unpaid work for another household with family ties that produces services for own final use. The output of these services is consumed by the household to which the services are rendered. Household services may be paid or unpaid. When paid, the worker may be in paid employment or self-employment and is a person engaged in economic activity. When unpaid, the worker may provide the service to his or her own household or to another household with family ties (i.e., as an unpaid household service) or to another household with no family ties (i.e., as volunteer work in the production of services by households).

Treatment of illegal activities

The 2008 SNA treats illegal actions that conform to the characteristics of transactions (notably the characteristic that there is mutual agreement between the parties) in the same way as legal actions. Thus, although the production or consumption of certain goods such as narcotics may be illegal, market transactions in such goods should, in principle, be recorded in the national accounts.

As such, the work done by people working illegally on a farm (i.e. visa holders working in breach of visa conditions), working in the construction industry without a permit, selling merchandise without a licence, or working ‘cash-in-hand’ for tax evasion purposes or for fear of being reported to immigration officials, falls within the scope of economic activity.

However, many illegal actions are crimes against persons or property that cannot be construed as transactions. For example, theft is not an action into which two units enter by mutual agreement. Conceptually, theft or violence is an extreme form of externality in which damage is inflicted on a household or another institutional unit deliberately, and not merely accidentally or casually. Thus, thefts of goods from households, for example, are not treated as transactions and estimated values are not recorded for them under household expenditures (2008 SNA 3.97; ASNA 3.22-3.23).

Due to reluctance in reporting illegal activity on the part of those engaged, it is likely that employment related costs, remuneration, employment, jobs and hours worked related to these activities are under-reported in both business and household surveys and administrative records used in compiling both Australian National Accounts and Australian Labour Account statistics.

Although some illegal activity is within the 2008 SNA production boundary and may be reported to some extent by businesses, Australia does not specifically adjust for employment relating to illegal activity in the ASNA. Similarly, illegal activity is not adjusted for in the Australian Labour Account.

Scope of the population

Economically active population

The Australian Labour Account contains information about the economically active population who provide labour for economic production. The economically active population is defined as all persons who, during a specified time, contribute to or are available to contribute to the production of economic goods and services as defined by the 2008 SNA.

Population age

The scope of the population in the Australian Labour Account includes all persons who contribute to Australian economic activity, irrespective of age. This scope is consistent with the 2008 SNA.

The ILO standards and guidelines defining the labour force recognise the need to exclude persons below a certain age from the measures, without specifying a particular age limit. The responsibility for setting such limits lies with individual countries. Examples of factors influencing the age limit are:

• legislation governing the minimum school leaving age;
• labour laws setting the minimum age for entering paid employment;
• the extent of the contribution to economic activity by young people; and
• the cost and feasibility of accurately measuring this contribution in household surveys.

A maximum age limit is not a feature of the international guidelines but, for practical reasons, some countries do use a maximum age limit. The international guidelines also recognise the possible need, in the survey context, to exclude other population groups such as persons living permanently or semi-permanently in institutions.

Australia has adopted an age definition of 15 years and over in the Labour Force Survey, as is allowed within ILO standards and guidelines. Australian labour and compulsory schooling legislation have resulted in low numbers of young persons below this age being involved in economic activity. While such legislation varies from state to state, the net result is that age 15 is the lowest practical limit at which it is feasible and cost-effective to measure the participation of young people in economic activity with acceptable accuracy in a household based collection (i.e. the Labour Force Survey).

Employment data collected in ABS surveys of businesses relate to all persons employed in economic activity falling within the scope of the survey, regardless of age.

Scope differences in ABS surveys are adjusted for in the Australian Labour Account.

Australian Defence Forces

The Australian Labour Account includes permanent members of the Australian Defence Forces (ADF). This is consistent with the scope of the 2008 SNA.

The ILO international standards require that members of the armed forces be classified as employed and recommends that, for analytical purposes, the economically active population be divided into two parts: the armed forces and the economically active civilian population. The guidelines recognise that there may be difficulties in obtaining information about membership in the armed forces from labour force surveys, and that separate use of administrative counts may be necessary.

As a result of these recognised difficulties in obtaining data, Australia excludes permanent members of the armed forces from the Labour Force Survey and the related labour force estimates. Similarly, ANZSIC Class 7600 (Defence) is out of scope of relevant business surveys. Data on Australian defence force members are included in the Australian Labour Account to adjust for differences in scope between survey data and the ASNA.

Australian Defence Forces Reservists

ADF reservists are included in the current collection of the Labour Force Survey, and in the Australian Labour Account. Reservist jobs are considered as secondary jobs, should the reservist have a main job elsewhere.

Non-private dwellings

While some household surveys exclude all persons living in non-private dwellings, these persons are included in the Labour Force Survey and therefore in the Australian Labour Account.

Persons living in non-private dwellings include persons living in correctional and penal institutions, dormitories of schools and universities, religious institutions, hospitals, boarding houses, hotels and motels and so on. The exclusion of the institutional population in some household surveys is largely due to practical considerations of sampling.

Institutional units and sectors

The 2008 SNA defines an institutional unit as an economic entity that is capable, in its own right, of owning assets, incurring liabilities and engaging in economic activities and in transactions with other entities (2008 SNA, 4.2; ASNA, 4.3). There are two types of institutional units: Households and Legal or Social Entities (ASNA 4.6).

Households

A household is defined as a group of persons who share the same living accommodation, who pool some or all of their income and wealth, and who consume certain types of goods and services collectively, mainly housing and food (2008 SNA, 4.4; ANSA, 4.7).

Households are providers of labour services.

Legal or social entities

A legal or social entity is defined as one whose existence is recognised by law or society independently of the persons or entities that may own or control it (2008 SNA, 4.6; ASNA, 4.10). In the Australian system, the legal entity unit is closest to the 2008 SNA concept of the institutional unit. However, in the ASNA, the unit used is the enterprise, which can be a single legal entity or a group of related legal entities that belong to the same institutional subsector. Four main types of institutional units are recognised in the 2008 SNA and the ASNA: households, non-profit institutions, government units and corporations (including quasi-corporations) (ANSA, 2.3).

The ASNA recognises corporations (incorporated and unincorporated), co-operatives, non-profit institutions, quasi-corporations and unincorporated government units (departments and agencies) as types of legal or social entity.

An enterprise is a view of an institutional unit as a producer of goods and services. The term enterprise may refer to a corporation, a quasi-corporation, a non-profit institution or an unincorporated enterprise (2008 SNA, 5.1).

Most enterprises consist of individual legal or social entities, or in some instances combinations of unincorporated legal or social entities. A household can constitute an enterprise where it undertakes economic activity that falls within the 2008 SNA production boundary.

An enterprise can be further subdivided into component production units where it engages in distinctive types of productive activity (multiple industries), at separate locations, e.g. a manufacturing plant and a wholesale outlet (2008 SNA, 5.2).

By creating jobs, enterprises generate demand for labour services.

The ABS has implemented these principles in the ABS Economic Units Model, which is used to determine the productive structure of Australian institutional units (ASNA, 4.31). The model consists of:

• The Enterprise Group (EG)
• Legal Entities (LEs)
• Type of Activity Units (TAUs)
• Location Units

The Enterprise Group is essentially equivalent to the 2008 SNA enterprise concept (2008 SNA, 5.1). The group dimension recognises the reality that enterprises can consist of multiple legal or social entities under common control.

Legal Entities approximate the 2008 SNA concept of legal and social entities, but is extended to include households engaged in productive economic activity.

Type of Activity Units incorporate the industry homogeneity element of the 2008 SNA establishment, recognising that distinct activities such as manufacturing and retailing can be co-located.

Location Units incorporate the location element of the 2008 SNA establishment.

Figure 4.3 below illustrates the nature of the relationships between the different units within the model.

Figure 4.3: ABS Economic Units Model*


*The legal entity (LE) statistical unit is generally equivalent to a single Australian Business Number registration.
Source: ABS, Australian System of National Accounts: Concepts, Sources and Methods, Australia, 2015 (cat. no. 5216.0, 4.31)

The Enterprise Group (EG) is an institutional unit that covers all the operations within Australia's economic territory of legal entities under common control. Control is defined in Corporations legislation. Majority ownership is not required for control to be exercised.

The Legal Entity (LE) is an institutional unit covering all the operations in Australia of an entity which possesses some or all of the rights and obligations of individual persons or corporations, or which behaves as such in respect of those matters of concern for economic statistics. Examples of legal entities include companies, partnerships, trusts, sole (business) proprietorships, government departments and statutory authorities. Legal entities are institutional units. In most cases, the LE is equivalent to a single Australian Business Number (ABN) registration.

The Type of Activity Unit (TAU) comprises one or more legal entities, sub-entities or branches of a legal entity that can report productive and employment activities. Type of Activity Units are created if accounts sufficient to approximate Gross Value Added are available at the Australian and New Zealand Standard Industrial Classification (ANZSIC) subdivision level.

A Location is a producing unit comprised of a single, unbroken physical area from which an organisation is engaged in productive activity on a relatively permanent basis, or at which the organisation is undertaking capital expenditure with the intention of commencing productive activity on a relatively permanent basis at some time in the future.

Institutional sectors

The institutional sectors of the 2008 SNA group together similar kinds of institutional units. Corporations, non-profit institutions, government units and households are intrinsically different from each other in that their economic objectives, functions and behaviour are different. Likewise, institutional units are allocated to sector according to the nature of the economic activity they undertake (2008 SNA, 4.16-4.17). 2008 SNA defines the following institutional sectors:

1. Financial Corporations;
2. Non-financial Corporations;
3. General government;
4. Non-profit institutions serving households (NPISH);
5. Households; and
6. Rest of the World.

In the ASNA, the NPISH sector is combined with the household sector.

Industry

An industry consists of all establishments (in the Australian context, Type of Activity Units) in the economy engaged in the same, or similar, types of activity (2008 SNA, 5.2; ASNA, 2.10-2.14). Units in the same industry are generally characterised by common production functions, use of similar types of assets, intermediate inputs or the production of outputs sharing common characteristics (ASNA, 5.1). Typically, goods producing industries are distinguished from service producing industries; extractive industries (agriculture, forestry, fishing and mining) are distinguished from transformative industries (manufacturing and construction) and from distributive industries (transportation, wholesaling and retailing).

Type of Activity Units are classified to an industry using the Australian and New Zealand Standard Industrial Classification (ANZSIC, 2006 version), which is based on the current International Standard Industrial Classification (ISIC, revision 4).

In business surveys, data about jobs, both vacant and filled, hours paid for, labour costs and remuneration are collected at the Type of Activity Unit level, and are classified to the industry of the unit. This is also the unit level at which data are collected for compiling production (Gross Value Added) and generation of income accounts.

The Australian Labour Account provides data for each of the 19 industry divisions that represent the highest level of the ANZSIC and a subset of data for each of the 86 subdivisions. ANZSIC division codes and titles are:

A Agriculture, Forestry and Fishing
B Mining
C Manufacturing
D Electricity, Gas, Water and Waste Services
E Construction
F Wholesale Trade
G Retail Trade
H Accommodation and Food Services
I Transport, Postal and Warehousing
J Information Media and Telecommunications
K Financial and Insurance Services
L Rental, Hiring and Real Estate Services
M Professional, Scientific and Technical Services
N Administrative and Support Services
O Public Administration and Safety
P Education and Training
Q Health Care and Social Assistance
R Arts and Recreation Services
S Other Services

Economic territory and residency

The production of meaningful statistics about the economically active population requires that the economic territory to which the population relates is accurately defined.

The concept of economic territory in the 2008 SNA is not identical to the concept of country. The most commonly used definition is a territory under the effective economic control of a single government, and as such usually approximates the geographic borders of a country.

In principal, the economic territory of Australia as defined in the ASNA includes the geographic territory under the effective control of the Australian government, including:

• any islands belonging to Australia which are subject to the same fiscal and monetary authorities as the mainland;
• the land area, airspace, territorial waters, and continental shelf lying in international waters over which Australia enjoys exclusive rights or over which it has, or claims to have, jurisdiction in respect of the right to fish or to exploit fuels or minerals below the sea bed; and
• territorial enclaves in the rest of the world (that is, geographic territories situated in the rest of the world and used, under international treaties or agreements, by general government agencies of the country). Territorial enclaves include embassies or consulates, military bases, scientific stations, etc. It follows that the economic territory of Australia does not include the territorial enclaves used by foreign governments which are physically located within Australia’s geographical boundaries.

Specifically, the economic territory of Australia consists of geographic Australia including Cocos (Keeling) Islands, Christmas Island, Norfolk Island, Jarvis Bay, Australian Antarctic Territory, Heard Island and McDonald Islands, Territory of Ashmore Reef and Cartier Island, and the Coral Sea Islands.

Within the Australian labour household surveys context, a distinction must be made between: the territories which determine the estimated resident population of Australia; those which are covered by household survey collection procedures; and those used to benchmark or ‘weight’ household survey estimates (i.e., the population benchmarks).

• The “other territories” of Australia, namely Jervis Bay, Christmas Island, Cocos (Keeling) Island, and Norfolk Island after the 2016 Census, are included in the estimated resident population of Australia, but excluded from household survey collection procedures and population benchmarks.
• The “external territories” of Australia, namely Territory of Ashmore and Cartier Islands, Coral Sea Islands Territory, Australian Antarctic Territory, and Territory of Heard and McDonald Islands, are not included in the estimated resident population, household survey collection procedures or the population benchmarks.

Within the Australian labour business surveys context, no further geographical restrictions are imposed. Samples for business surveys are typically selected from the ABS Business Register, and therefore all businesses within the economic territory of Australia may be included, providing they meet other relevant scope restrictions.

Residency

Within the 2008 SNA, residency is defined as the economic territory with which an institutional unit or individual has the strongest connection - in other words, its centre of predominant economic interest. Each institutional unit or individual is a resident of one and only one economic territory.

Actual or intended residence for one year or more is used as an operational definition in many countries (including Australia) to facilitate international comparability.

Residence of individuals and households

Persons are considered to have the strongest connection with the economic territory in which they physically reside. In the broadest sense, the total population consists of either all usual residents of the country (the usually resident or de jure population) or all persons present in the country (the de facto population) at a particular time.

Household surveys use the first population category, the usually resident population. All persons who are usually resident in Australia are considered part of the usually resident population, regardless of nationality, citizenship or legal status.

To determine whether a person is usually resident, Australia has adopted a 12 in 16 month rule. This rule specifies that, to be considered a usual resident, a person must have been (or expect to be) residing in Australia for 12 months or more in a 16 month period. This 12 month period does not need to be consecutive.

The application of the 12 in 16 month rule in the labour household survey context cannot be so precise. A screening question asks if the respondent is a short term resident and, if so, they are excluded from the survey. Labour household surveys also include residents who are temporarily overseas for less than six weeks. However, the 12 in 16 month rule is explicitly applied in the estimated resident population, and the population benchmarks used to weight the LFS. For more information regarding the 12 in 16 month rule, refer to Information Paper: Improved Methods for Estimating Net Overseas Migration, 2006 (cat. no. 3107.0.55.003).

Residence of students

In the 2008 SNA, the residence of students is described as:

"…people who go abroad for full-time study generally continue to be resident in the territory in which they were resident prior to studying abroad. This treatment is adopted even though their course of study may exceed a year. However, students become residents of the territory in which they are studying when they develop an intention to continue their presence in the territory of study after the completion of the studies."

Within the Australian labour household survey context, there is no special treatment for students and they are treated using the same 12 in 16 month rule. Within the Australian business survey context, there is no distinction made between students and other persons, such that they are included if they are an employee, irrespective of their length of stay in the country.

Residence of enterprises

Within the labour business survey context, the de facto population is used, that is, all employees are included irrespective of their length of stay in the country. This is consistent with the SNA production boundary.

As a general principle, an enterprise is resident in an economic territory when it is engaged in a significant amount of production of goods or services from a location in the territory.

An enterprise is resident in an economic territory when there exists, within the economic territory, some location, dwelling, place of production, or other premises on which or from which the unit engages and intends to continue engaging, either indefinitely or over a finite but long period of time, in economic activities and transactions on a significant scale. The location need not be fixed, so long as it remains within the economic territory.

Corporations and non-profit institutions normally may be expected to have a centre of economic interest in the economy in which they are legally constituted and registered. Corporations may be resident in economies different from their shareholders, and subsidiaries may be resident in different economies from their parent corporations.

When a corporation, or unincorporated enterprise, maintains a branch, office, or production site in another territory to engage in a significant amount of production over a long period of time (usually one year or more) but without creating a corporation for the purpose, the branch, office, or site is considered to be a quasi-corporation (i.e., a separate institutional unit) resident in the territory in which it is located.

Within the Australian business survey context, residency is determined by deriving the sample selection of business frames from the Australian Business Register, which is an administrative data source maintained by the Australian Taxation Office (ATO). The registration of a business by the ATO is deemed to be a demonstration that the business has a centre of economic interest within Australia.

Residency in the Australian Context

Applying residency concepts to survey collections:

• Business surveys:
  
  • include non-residents living in Australia employed by Australian companies, such as short-term foreign students studying in Australia for periods of less than 12 months.
  • include estimates of non-resident persons engaged by Australian businesses operating overseas that have no intention to stay in the non-resident country for more than 12 months.

• Household surveys:
  
  • include Australian residents living in Australia employed by non-resident enterprises, for example Australians engaged by foreign embassies and consulates and by overseas companies that have no intention of staying in Australia for more than 12 months.
  • do not include estimates of non-resident persons engaged by Australian businesses operating overseas, that have no intention to stay in the non-resident country for more than 12 months.

Applying residency concepts in practice, the Australian Labour Account makes the following scope adjustments to household survey estimates:

• add: non-residents living in Australia employed by Australian companies. Non-residents such as short-term foreign students studying in Australia for periods of less than 12 months, short-term migrants and working tourists are included because they contribute to Australia’s economic production and are included in the Compensation of Employees component of Gross Domestic Product (GDP).
  
• less: Australian residents living in Australia employed by non-resident enterprises, for example Australians engaged by foreign embassies and consulates and by overseas companies that have no intention of staying in Australia for more than 12 months.

The Australian Labour Account does not include estimated numbers of non-resident persons engaged by Australian businesses operating overseas, but with no intention to stay in the non-resident country for more than 12 months. While conceptually included in the scope of the Australian Labour Account, due to lack of data no estimate has been included for the foreign workers they may employ.

The economic territory used in the Australian Labour Account is summarised in Figure 4.4 below.

Figure 4.4: Australian Labour Account economic territory