RDP 2002-07: An Exploration of Marginal Attachment to the Australian Labour Market 1. Introduction

One of the key factors that affects the extent to which changes in labour demand affect other macroeconomic variables, such as wage inflation, is the degree of matching between potential employees and available jobs. The pool of potential employees is usually measured as the pool of unemployed workers. However, this ignores an important group of people who are not officially unemployed, but who represent potential labour supply – the marginally attached workforce. This workforce can be defined broadly as the people who are not currently in the labour force, but want to work and are available to take up employment. For example, seasonal workers can be counted as marginally attached in the off-season if the only reason they are not looking for work is the intermittent nature of employment opportunities in their local labour market. Another important group of marginally attached people is discouraged workers who want a job and are currently available for work but have given up actively searching for work because they believe they cannot find work.

The extent to which the marginally attached contribute to the effective labour supply in the economy depends upon the extent to which the labour market behaviour of the marginally attached workers is similar to that of the unemployed. To date, there is no Australian research on the average length of time spent as a marginally attached worker, or on the transitions between marginal attachment and other labour force states (such as employment and unemployment). This paper seeks to redress this gap in the literature.

The main source of information about marginally attached workers is the Labour Force Survey (LFS) conducted by the Australian Bureau of Statistics (ABS). This data source provides us with information about the stock of marginally attached workers. However, this survey only provides a limited amount of information on the labour market dynamics of marginally attached workers, which is the focus of this paper. To this end, longitudinal data on the Australian population from the Survey of Employment and Unemployment Patterns (SEUP) are used. In particular, multivariate regression techniques are used to estimate the determinants of the labour force transitions of the unemployed and the marginally attached.

The rest of the paper is organised as follows. Section 2 reviews what we know about marginally attached workers from previous research. In Section 3 we discuss the SEUP data, various definitions of labour force status and consider the representativeness of the data. In Section 4 we use the longitudinal nature of the data to analyse the labour market dynamics of the employed, unemployed, marginally attached and other not-in-the-labour-force (NILF) groups. Section 5 considers the factors affecting these labour force transitions in a regression framework. The final section of the paper reflects on the policy implications of the results.