RDP 2002-07: An Exploration of Marginal Attachment to the Australian Labour Market 6. Conclusion

This paper provides evidence on whether Australia's marginally attached can be thought of as representing part of the effective labour supply. Longitudinal data from the SEUP have been used to compare the labour market dynamics of various groups, and multivariate regression techniques have been used to estimate what factors are most strongly related to the labour force transitions for the unemployed and marginally attached.

The analysis of labour market dynamics demonstrates that there are few differences between the dynamic behaviour of the marginally attached and the unemployed. The two groups have a similar probability of remaining in the same labour force state, although they are slightly different in the extent to which they move completely out of the labour force. The key difference is that the marginally attached find it more difficult to secure a job in the short-run, and many have to spend some time in active job search before they find work. Given that the marginally attached have a similar rate of transition into employment as the other NILF category, this indicates their reasons for not searching for work are very different – probably indicating differences in personal circumstances. Overall the transition analysis suggests that the marginally attached have a similar attachment to the labour force as the unemployed, which is an argument for including both groups in assessing effective labour supply.

The regression analysis of transition teases out the differences in the effect of personal circumstances on the dynamic behaviour of unemployed and marginally attached. A broad pattern evident in the regression analysis is that, for the unemployed, personal circumstances affect the probability of finding employment relative to that of remaining in unemployment, but they only have limited effects on other labour force transitions. For the marginally attached, personal circumstances tend to affect the transitions between all the labour force states. While the overall transitions are similar for the unemployed and marginally attached populations, the factors driving their behaviour can differ substantially.

Educational attainment is positively correlated with the probability of finding work for both groups. Family structure also has an effect on the dynamic labour market outcomes for both the unemployed and the marginally attached, and as hypothesised, the effects vary with gender. The presence of dependent children reduces the probability of both groups moving into employment, although the results suggest that for males with dependents, there is an offsetting effect. Having a disability decreases the probability of finding employment for both groups, although the effect is larger and more statistically significant for those who are unemployed. However, having a disability among the older marginally attached is associated with large transitions into employment (especially in the medium and long-run), apparently without an intervening spell of unemployment. If, as we speculate, this is related to the recovery from an injury or illness that prevented them from working, then there is an argument for including them as a part of the aggregate labour supply because their attachment to the labour force is strong.

While there are similarities in the aggregate labour market dynamics of the marginally attached and the unemployed, the factors that are correlated with transitions between the labour force states are quite different. This suggests that the decision about whether or not the marginally attached are classified as being part of the aggregate labour supply depends on the policy question being asked. For example, if we want to consider the macroeconomic effects of changes to family policy, such as the affordability of childcare, our analysis suggests that we should count marginally attached females as a part of the potential labour supply.

In general, this analysis suggests that a range of measures of potential labour supply should be considered, and as such it supports recent moves by the ABS to publish such data (ABS 2002). However, it should be noted that the recent ABS initiative only includes a small subset of marginally attached workers in the alternative measures of labour supply (mainly discouraged workers). The analysis in this paper suggests that a much higher proportion of the marginally attached should be considered in measures of effective labour supply.