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1 Introductory concepts 2  Market mechanism  3 Elasticities  4 Market structures 5  Market failures  6  Macro economic activity/eco growth  7 Inflation 8  Employment & unemployment  9  External Stability  10  Income distribution 11.Factors affecting economy  12  Fiscal/Budgetary policy  13  Monetary Policy   14 Aggregate Supply Policies  15 The Policy Mix

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Underemployment and the underutilisation rate

Unemployment figures do not capture the incidence of underemployment (sometimes referred to as Disguised Unemployment). The underemployed are those individuals that are classified as employed, but who would prefer to be working more hours. Usually, they are working on a part-time or casual basis when they would prefer to work full-time. Alternatively, they may underemployed because their employer is operating below full capacity (e.g. full-time workers employed at reduced hours).  Many people underemployed experience similar problems to those unemployed - reduced incomes, greater stress and a reduction in living standards.

During an economic downturn, underemployment will tend to rise a greater extent than unemployment as businesses decide to reduce working hours of employees rather than make them redundant.  This results in the underutilisation rate rising by a greater percentage than the unemployment rate.  However, this is likely to be reversed during an economic recovery as businesses will first offer existing workers more hours rather than take on additional workers.

This highlights a clear shortcoming of the Australian government's focus on unemployment statistics as a measure of its success in achieving 'full employment'.  For it is theoretically possible for the number of unemployed to fall and the number of underemployed to increase by the same number, resulting in no change in the underutilisation rate (the unemployed + underemployed as a percentage of the labour force).  Accordingly, any attempt by the government to 'boast' about the lower unemployment statistic tends to be misleading.  

In recognition of the shortcomings of unemployment statistics as a measure of both spare capacity and the 'losses' associated with little or no work, there is increasingly more emphasis given to both the underemployment and underutilisation rates. For the latest underemployment rates see ABS catalogue 6265.0.  For the latest underutilisation rate visit ABS catalogue 6202.0.

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