1. Underemployment Understanding Growth in Australia Seminar presented
By Dr Greg Connolly and Ana Sikoska
at the NATSEM Seminar Series
on 11 October 2016
University of Canberra
This presentation is based on a research paper developed by Dr Greg Connolly, Ana Sikoska and Adam Bartlett of the Labour Economics Section in the Department of Employment. This paper reflects the authors’ views and does not necessarily represent those of the Department of Employment or the Australian Government. We would like to thank other members of the Labour Economics Section in the Department of Employment for their assistance, including in updating the data base used for this analysis.

2. Introduction Who are the Underemployed?
1. Willing to work more hours and actively seeking to work additional hours
2. Available to work more hours within a specified period (reference week)
3. Working hours below a threshold which is defined as 35 hours per week (full-time)
Employed persons who are…
This includes:
In our analysis we used the ABS definition of underemployment, which specifically refers to those who are employed but are actively seeking to work more hours (in the four weeks to the end of the reference week), are actually able to work those extra hours (in the reference week), and are working less than 35 hours per week. The reference week is that used for the ABS monthly Labour Force Survey.
This is primarily made up of the part-time workers who want to work more hours, but also includes the people who usually work full-time, but were forced to work part-time in the reference week due to economic reasons. An example of someone “worked part time in the reference week for economic reasons” is because of insufficient work being available.
Full-time workers forced to work part-time for economic reasons
Part-timers who want to work more hours

3. Overqualified Introduction Overeducated Over-skilled
Broader definitions of underemployment extend beyond the ABS’ time-related definition.
Overeducated
Inadequately Employed
Low Skill Utilisation
Over-skilled
Underpaid
Low Reemployment Quality
But broader definitions of someone being underemployed extend beyond this definition
McKee-Ryan and Harvey (in their 2011 paper) nicely encapsulated what these employment situations might consist of.
The ILO refers to these as invisible underemployment situations, and as the name suggests, invisible underemployment is really difficult to measure and lacks a consistent definition, so will not be explored in our analysis.
Note that invisible underemployment can be further broken down into income-related and skill-related invisible underemployment (as defined by the ILO in 1998). Income-related is when an individual receives inadequate wage income (likely to be caused by low productivity within the organisation) and skill-related refers to when someone’s skills and knowledge are not being properly utilised in their current job.
Overqualified
These are examples of invisible underemployment situations.

4. Youth Underemployment Rate
Introduction
Employment growth in year to…
Part-time
Unemployed
August 2016
Youth Underemployment Rate
17.9 %
Over the last year, part-time employment growth made up 60% of total jobs growth, but at the start of our study, only a quarter of new jobs were part-time. It was reported in a parliamentary research paper by Geoff Gilfillan that the proportion of Australian students who found full-time employment after 4 months of graduating was only 68% in 2014 (which is even less than in 1992, right after the recession). In 1992, those graduates who couldn’t find full-time work were just as likely to be unemployed as they were to be working part-time, but in 2014, they were more likely to settle for a part-time job. => More young people are falling in the underemployed category. In August 2016, the youth underemployment rate was 17.9 per cent, compared with the underemployment rate of 8.7 per cent for all adults. The Foundation of Young Australians reported that 29% of uni graduates and 62% of VET graduates who were newly employed settled for jobs outside their field of study.
The underemployment rate has generally been larger than the unemployment rate since February Not as worried about underemployed workers as we are about the unemployed because they have some kind of job. Underemployment in Australia has consistently been higher than that of the OECD average.

5. Methods Looking at the underemployment share of total employment
ABS: Underemployment Ratio
Analysis ranges from:
2016 Q2
1978 Q1
for men
for women
1982 Q3
The underemployment rate is the underemployed as a proportion of the labour force.
Analysis starts later for women because the series from the ABS CPI for the cost of childcare did not start until March quarter 1982.
long-run results
Two-step error-correction model
short-run results

6. Underemployment Shares
Dependent Variables
Underemployment Shares
In line with ABS definitions, we’ll refer to these as underemployment ratios. The ABS also releases statistics on the underemployment rate, which is underemployment as a percentage of the labour force. We didn’t use this as our dependent variables, because this would have added unemployment to the denominator of the dependent variable and complicated the explanatory task.

7. Labour Market Structure
Determinants
Labour Market Structure
Full-time unemployment rate
Part-time unemployment rate
The share of part-timers in female employment has consistently been higher than that for male employment. However, both shares have been increasing over time.

8. Economic Growth Indicators
Determinants
Economic Growth Indicators
Output gap
Cumulative falls in the log of real non-farm GDP/adult
Investment and household consumption shares of real GDP
Output gap (in logarithmic terms): the difference between the log of actual GDP and the log of attainable (a.k.a. potential) GDP. The variable representing cumulative rises in the log of real non-farm GDP/adult was statistically insignificant in the long-term equations in the model.

9. Determinants Financial Conditions
Real interest rate on 90 day bank bills
Four quarterly growth rate of business debt finance
The yield curve or the yield difference is the 10-year Commonwealth bond yield (%pa) minus the 90-day bank-bill interest rate (%pa). A higher value indicates an easier stance of monetary policy.

10. Supply-Side Variables
Determinants
Supply-Side Variables
Dwelling investment in real non-rent GDP
Income earned from wealth
Proportion of LF who are NESB Migrants
The last variable on the list is the Proportion of the Labour Force who are Migrants from a Non-English Speaking Background.

11. Demand-Side Variables
Determinants
Demand-Side Variables
- Ratio of female to male AWOTE wages
AWOTE = Average Weekly Ordinary Time Earnings (for adults working full-time).

12. Male Underemployment increases due to increases in:
Male Results
Male Underemployment increases due to increases in:
Full-time male unemployment rate
Part-time share of male employment
Real unit labour costs
The ratio of female to male wages
The real interest rate on 90-day bank bills
The male underemployment ratio also increases with further cumulative falls in the log of real non-farm GDP per adult. In the long run, a one per cent additional fall in the log of real non-farm GDP per adult is followed by a 2.06 per cent rise in the male underemployment ratio.

13. Male Results In the long-run:
The male share increases by 0.96%
… if the male part-time employment share increases by 1%
Increase the male share by 1.01%
A 1% increase in real unit labour costs is estimated to…
The male share increases by 0.25%
… if the male full-time unemployment rate increases by 1%

14. Male Underemployment is reduced by increases in:
Male Results
Male Underemployment is reduced by increases in:
Government consumption share of GDP
Investment share of GDP
Actual real GDP, relative to attainable real GDP
Growth of business debt finance
Male part-time unemployment rate
Income earned from wealth
The output gap (in logarithmic terms) is the difference between the logs of actual and attainable real GDP.

15. Male Results In the long-run: Decrease
the male share by 3.44%
A 1% increase in Actual versus Attainable Real GDP is estimated to…
The male share decreases
by 0.20%
… if the share of investment in real non-rent GDP increases by 1%
Decrease
the male share by 1.43%
A 1% increase in the General Government Consumption share of real non-rent GDP is estimated to…

16. Male Results The Short-Run
Adjustment (to long-run) parameter: ⟹ Short term shocks are corrected relatively quickly
⟹ Almost half the adjustment occurs in one
quarter
Shocks don’t have a long-lasting effect
Many of the elasticities were also strong in the short term.

17. Female Underemployment increases due to increases in:
Female Results
Female Underemployment increases due to increases in:
Full-time female unemployment rate
Part-time share of female employment
Dwelling investment share of GDP
Real unit labour costs
Real child care fees
The proportion of the labour force who are migrants from a non-English speaking background
The female underemployment ratio also increases with further cumulative falls in the log of real non-farm GDP per adult. In the long run, a one per cent additional fall in the log of real non-farm GDP per adult is followed by a 4.67 per cent rise in the female underemployment ratio.

18. Female Results In the long-run:
The female share increases by 0.18%
… if the female full-time unemployment rate increases by 1%
Increase the female share by 1.49%
A 1% increase in the female part-time employment share is estimated to…
The female share increases by 0.07%
… if the real childcare fees increase by 1%

19. Female Underemployment is reduced by increases in:
Female Results
Female Underemployment is reduced by increases in:
General Government Consumption share of real GDP
The difference between the logs of actual and attainable real GDP
The job vacancy rate
The yield curve
Income earned from wealth
Growth rate of business debt finance

20. Female Results In the long-run: Decrease the female share by 2.30%
A 1% increase in actual versus attainable real GDP is estimated to…
The female share decreases
by 0.80%
… if the share of General Government Consumption in GDP increases by 1%
Decrease the female share by 0.11%
Job Vacancy Rate = Ratio of ABS Job Vacancies to ABS Labour Force.
A 1% increase in the Job Vacancy Rate is estimated to…

21. Female Results The Short-Run
Adjustment (towards long-run) parameter:
Short term shocks are adjusted faster for females than for males
Short-run elasticity of female underemployment to the Proportion of the Labour Force from a non-English Speaking Background is 0.3.
⟹ But the effect is not significant in the long run

22. Two Main Drivers For Men For Women
Share of Part-time Workers contributed:
78 % pts
52 % pts
to the total growth rate
Cumulative Falls in the Logarithm of Real Non Farm GDP contributed:
These contributions are estimated from the beginning to the end of the sample period used in the econometric analysis.
30 % pts
114 % pts
to the total growth rate

23. These Drivers Subtracted from Growth:
Offsetting Factors
These Drivers Subtracted from Growth:
Men and Women
Real Unit Labour Costs
Women Only
Full-time Unemployment Rate
Job Vacancy Rate
Dwelling Investment Share of GDP

24. Conclusions
The share of part-time employment has a very close association with the rise in the underemployment shares
Economic recessions have a persistent effect in raising the underemployment shares
Other economic factors have also impacted the rising underemployment shares in Australia
The labour supply side determinants of underemployment are different for men and women