Full Employment

Labour Force Underutilisation

The unemployment rate and the participation rate are both important measures of the labour force, and each can be used effectively when an assessment is being made. However, there are some significant problems associated with the measure of unemployment that we use in this country. To try and combat some of these issues, for several years the Australian Bureau of Statistics has published two separate measures of labour force underutilisation.

The Labour Force Underutilisation Rate (LFUR)

The labour force underutilisation rate is an attempt to calculate the percentage of the labour force that is not being used to full capacity. Instead of just expressing the number of unemployed people as a percentage of the labour force, when calculating the LFUR we also account for the number of people who are underemployed. In other words, the LFUR can be calculated as follows:

Number of people unemployed + The Disguised Unemployed	x	100
Number of people in the labour force	x	1

You will recall that the people who form the disguised unemployed are those who would like to work more hours, or those who believe that their skills are not being fully utilised.

In other words, this calculation is an attempt to reveal the total percentage of the labour force that is either not contributing, or not contributing as much as they could to the overall level of output. If either of these issues was addressed, the total capacity of the economy would increase.

In mid 2008 the LFUR was recorded at 9.6%. Just a few months later the rate had increased to 13.6% (as at May 2009). This reflects the fact that during the economic downturn many people were asked to work fewer hours. While this helped them to maintain their position, it also meant that they were now officially members of the underemployed.

The Extended Labour Force Underutilisation Rate (ELFUR)

While the labour force underutilisation rate is an effective measure, it can be extended to reflect the true situation even more accurately. Since 2002 the ABS has published the ELFUR. In this case the measure also takes into account some people who are members of the non-labour force. Many of these people would work if they were given the opportunity, and as a result this represents unused capacity in the Australian labour market. The ELFUR attempts to account for these people.

There are two specific groups in the non-labour force that are added to the calculation of the ELFUR:

1. Discouraged job seekers

2. Those who are actively seeking work, and are available to start work within the next four weeks, but are not available in the reference week

These two groups will add a small extra amount to the figure that was calculated for the LFUR. For example, for November 2009 the following statistics were published by the ABS:

The Unemployment Rate: 5.5%

The Labour Force Underutilisation Rate: 12.9%

The Extended Labour Force Underutilisation Rate: 14.1%

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