Demystifying Interest Rate Terminology

With all this talk about unemployment and the different terms bounded around within it, I thought it might be helpful to explain what the terms mean, how unemployment is calculated, what is the participation rate and who is considered underemployed.

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 This explainer outlines two key topics related to unemployment.

 1.How is the unemployment rate measured?

2. What are the main types of unemployment?


How is the unemployment rate measured?

 Unemployment occurs when someone is willing and able to work but does not have a paid job. The unemployment rate is the percentage of people in the labour force who are unemployed. Consequently, measuring the unemployment rate requires identifying who is in the labour force. The labour force includes people who are either employed or unemployed. Figuring out who is employed or unemployed involves making practical judgements, such as how much paid work someone needs to undertake for them to be considered as having a job, as well as actually counting how many people have jobs or not.

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 In Australia, the Australian Bureau of Statistics (ABS) is responsible for collecting labour market data. The ABS conducts a survey each month – called the Labour Force Survey – in which it asks around 50,000 people about their participation in the labour market. As part of this survey, the ABS groups people aged 15 years and over (the working-age population) into three broad categories:

  • Employed – includes people who are in a paid job for one hour or more in a week.
  • Unemployed – includes people who are not in a paid job, but who are actively looking for work.
  • Not in the labour force – includes people not in a paid job, and who are not looking for work

    This can include people who are studying, caring for children or family members on a voluntary basis, retired, or who are permanently unable to work.

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 Once the number of people in each of these categories has been estimated, the following labour market indicators can be calculated:

  •  Labour force – the sum of employed and unemployed people.
  • Unemployment rate – the percentage of people in the labour force that are unemployed.
  • Participation rate – the percentage of people in the working-age population that are in the labour force.

Other Types of Unemployment

 There are some other types of unemployment that are also important to consider. In particular, the underemployment rate can be thought of as a complementary indicator to the unemployment rate when thinking about conditions in the labour market.

  • Underemployment occurs when people are employed, but would like and are available to work more hours. There are two categories of underemployed people defined by the ABS. First, part-time workers who would prefer to work additional hours. Second, people who usually work full time, but are currently working part-time hours. Underemployment rates are generally higher among groups that have a larger proportion of people working part time, such as females, younger workers and older workers.
  • Hidden unemployment occurs when people are not counted as unemployed in the formal ABS labour market statistics, but would probably work if they had the chance. For example, someone might have looked for work for a long time, given up hope and stopped looking, but still wish to work. (These people are sometimes referred to as ‘discouraged workers’.)
  • Seasonal unemployment occurs at different points over the year because of seasonal patterns that affect jobs. Some examples include ski instructors, fruit pickers and holiday-related jobs. The ABS publishes seasonally adjusted labour market statistics, which remove seasonal patterns in the data.

Source RBA

Latest Labour Force Figures ABS: