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Research Note no. 22 2004–05
Labour market dynamics
Tony
Kryger
Statistics Section
29 November 2004
Each month the Australian Bureau of Statistics (ABS)
releases new unemployment figures and the media duly reports whether
there has been a rise or fall in unemployment since the previous month.
There is a tendency to think that the stock of unemployed persons remains
very much the same from one month to the next, with changes occurring
mainly at the margin. In other words, it is common to think that if
unemployment increases (say) from 500 000 to 520 000 then
the original stock of 500 000 has remained more or less in place
and that 20 000 new persons have joined the ranks of the unemployed.
However, in reality the situation is one that involves dynamic changes
in the status of being either employed, unemployed or not in the labour
force.
The ABS produces gross flow statistics which measure,
from one month to the next, the flow of persons between the different
labour force categories. The ABS is able to do this because between
any two successive months in which the Labour Force Survey is conducted,
seven-eighths of the sample remains unchanged. When other factors such
as mobility of the population and survey non-response are taken into
account, it is usually possible for the ABS to match about 80 per cent
of all persons from one survey to the next.
The purpose of this Research Note is to examine the
dynamic nature of the labour market. For simplicity, this is done by
comparing two successive months (July and August 2004) which experienced
little change in terms of the aggregate number of persons recorded as
either employed, unemployed or not in the labour force (that is, neither
employed nor unemployed). It will be shown that a situation that appears
fairly stable at an aggregated level can mask considerable change at
the micro level.
Unemployment dynamics
Between July 2004 and August 2004, the number of
unemployed persons (derived from matched records) increased slightly
from 413 000 to 421 000. What appears to be a situation of
little change on the surface, however, conceals the fact that of those
unemployed in August 2004, only 57 per cent had also been unemployed
in the previous month. A significant proportion (25 per cent) of the
unemployed had previously been out of the labour force, while 17 per
cent had previously been in a job (see Chart 1). In relation to the
unemployed in July 2004, Chart 2 shows that 19 per cent had found a
job by the following month while 23 per cent had moved out of the labour
force altogether.
Unemployment dynamics vary between the sexes. The
likelihood of a male remaining unemployed from one month to the next
is somewhat higher than it is for a female—60 per cent of males compared
with 55 per cent of females who were unemployed in August 2004 were
also unemployed in July 2004. Of persons entering unemployment in August
2004 (that is, persons who had not been unemployed in the previous month),
69 per cent of females and 50 per cent of males had previously been
outside the labour force. In other words, well over half of all persons
joining the ranks of the unemployed in August 2004 did so, not because
they had recently lost their jobs, but because they had deliberately
decided to look for work and were available to start work should a job
There are many reasons why a person previously outside
the labour force may decide to start looking for work. These include
a situation in which a second family member is compelled to enter the
labour market to help ease financial pressures on the family. Another
situation might be one in which an individual, otherwise content to
remain out of the workforce, is enticed into the labour market by favourable
work conditions or wage rates. To the extent that some individuals are
enticed rather than forced into the labour market, unemployment for
some may be regarded as largely a matter of choice.
Employment dynamics
Persons employed full-time are a very stable group
with almost 94 per cent of those employed full-time in August 2004 being
similarly employed in the previous month. The corresponding figure for
persons employed part-time was much less at 80 per cent.
Not surprisingly, those persons moving into either
a full-time or part-time job in August 2004 were mainly persons who,
in the previous month, were already employed. In other words, those
moving into a full-time job were mainly persons who had been employed
part-time, while those moving into a part-time job were mainly persons
who had been employed full-time.
It is interesting to note the strong attachment that
females outside the labour force have to part-time work. Of those women
who moved into a part-time job between July and August 2004, four times
as many came from outside the labour force as came from the ranks of
the unemployed. For males taking up a part-time job in August 2004,
there were about twice as many who came from outside the labour force
as came from the ranks of the unemployed. While persons moving into
a full-time job were also more likely to have come from outside the
labour force than from unemployment, the bias was not as strong, nor
was the difference between males and females anywhere near as marked,
as it was for the part-time employed.
Implications
While this analysis is largely illustrative in that
it is based on observations with respect to two months only, some general
observations can be made. First, the high propensity for jobs to be filled
by workers drawn from outside the labour force has clear implications
for any job creation measures aimed at reducing unemployment.(1)
Between July and August 2004, there were more than twice as many people
who entered employment from outside the labour force as there were persons
who entered from unemployment. Therefore, in order to reduce unemployment
significantly, the number of new jobs created has to be much greater than
the number of unemployed persons. Moreover, given that females have a
greater tendency than males to enter employment from outside the labour
force, jobs created in industries with a strong female representation
will have less of an impact on unemployment than jobs located in industries
with a strong male representation.
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The propensity for new jobs to attract workers
from outside the labour force is also discussed in a paper by R. G.
Gregory, Jobs and Gender: A Lego Approach to the Australian Labour
Market, ANU Centre for Economic Policy Research, Discussion Paper
No. 244, November 1990.
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