Do Official Figures Understate 'True' Unemployment?
Tony Kryger
Statistics Group
23 March 1998
Introduction
The official unemployment figures are those produced by the Australian
Bureau of Statistics (ABS). These figures conform with international standards
as laid down by the International Labour Office of the International Labour
Organisation (ILO). The Australian figures are thus consistent with those
produced by several overseas countries. This said, however, it is also
the case that ABS (and therefore ILO) labour force definitions are biased
toward counting a person as employed rather than as unemployed.
Definitions
According to ABS definitions, the labour force category to which people
belong is assessed on the basis of their activity during a specified period
of one week (called the reference week). Intuitively, one might expect
that a person would be classified as employed or unemployed on the basis
of his or her major activity in the reference week. In other words, anyone
who spent more than 50 per cent of their reference week unemployed should,
on this basis, be classified as unemployed. A precedent for this kind
of thinking is to be found in the way the ABS itself classifies an establishment
(mine, factory, shop, etc.) to a particular industry class on the basis
of its major activity.
Unlike the classification system for establishments, the ABS defines
people as employed even if they spend as little as one hour of the reference
week in employment and spend every other hour of the week actively seeking
a job. Officially, the ABS defines an employed person as someone
aged 15 years or over who, during a period of one week, worked for one
hour or more for pay, profit, commission or payment in kind; or worked
for one hour or more without pay in a family business or on a family farm.
An unemployed person is defined as someone aged 15 years or over
who, during a period of one week was not employed, and had actively looked
for work in the previous four weeks and was available to start work.
Underemployment
Far from trying to conceal the true extent of unemployment, however,
the ABS publishes separate figures on those persons working less than
full-time hours (1-34 hours) who would prefer to work more hours. These
persons are referred to as the underemployed. (Also included in the underemployed
are full-time employed persons working less than 35 hours in the reference
week for so-called economic reasons, i.e. stood down, on short time, or
insufficient work.) By adding together the unemployed and underemployed
one can arrive at a more comprehensive measure of excess labour capacity.
The number of underemployed persons in Australia during 1997, as identified
by the ABS, averaged around 635 000. Of these, nearly 570 000
were part-time employed persons who would have preferred to work more
hours. If these persons are classified by the number of hours which they
did work, we find that around 80 000 worked 1-5 hours. In other words,
the ABS Labour Force Survey counted as employed, 80 000 people who
worked as little as 1-5 hours and who would have preferred to work more
hours. If this number of persons was added to the unemployed then the
average unemployment rate in 1997 would have climbed from 8.6 to 9.4 per
cent.
An underemployment rate can be derived by expressing the number of underemployed
persons as a proportion of the labour force. The chart above shows that
the under-employment rate increased steadily, but slowly, from around
21/2 per cent in the late 1970s to about 4 per cent at the end of the
1980s. It then increased rapidly in the 1990s to peak at 7.3 per cent
at the close of 1992. Though it decreased somewhat in the years that followed,
the underemployment rate has been less inclined to move downward than
has the unemployment rate.
While we have become used to an unemployment rate during the past three
years of between 8 and 9 per cent (seasonally adjusted), that rate climbs
to between 15 and 16 per cent when we add in the underemployed.
Discouraged Jobseekers
Arguably, one could also add discouraged workers to the measure of excess
labour capacity. Discouraged workers are defined by the ABS as those persons
who do not satisfy the strict definition of unemployment but who nevertheless
want to work and were available for work but were not actively looking
for work for reasons considered to indicate discouragement (e.g. considered
to be too young or too old by employers, no jobs available in locality,
etc.).
The table below has been constructed to show what the effect would be
of adding to the unemployed both the under-employed and discouraged jobseekers.
Thus in September 1997 (the latest period for which all figures are available)
there were 793 000 unemployed, 556 000 underemployed and 118 000
discouraged jobseekers. This amounts to 1.5 million persons whose labour
potential is either not being used or is underutilised in some way.
Marginally Attached to the Labour Force
Discouraged workers are part of a larger category of persons referred
to as those marginally attached to the labour force. This category comprises
persons not in the labour force but who want to work and were either a)
actively looking for work but did not meet the strict criteria to be classified
as unemployed or b) not actively looking for work but available to start
work within four weeks. While most attention focuses on discouraged jobseekers,
a case could be made for including all the marginally attached as part
of society's unused labour capacity.
In September 1997 there were almost 900 000 persons marginally attached
to the labour force, of which 70 per cent were female.
Conclusion
Official, or ABS, labour force figures do not understate the level
of unemployment. This is not to say that ABS figures are free of error.
Errors may occur in any form of enumeration and the ABS has adopted stringent
operating procedures to ensure that any errors made in collecting or processing
the data are kept to a minimum. Some may argue that the ABS definition
of unemployment is inadequate in that it does not fully measure excess
labour capacity. As this Research Note has shown, however, there are several
measures of excess capacity-unemployment, underemployment and discouraged
jobseekers-for which figures are published by the ABS and which may be
added together to provide a composite measure of excess labour capacity
in the community.
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