Research Discussion Paper – RDP 2002-07 An Exploration of Marginal Attachment to the Australian Labour Market

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 do represent potential labour supply – the marginally attached workforce, which can be broadly defined as the people who are not currently in the labour force, but want to work and are available to take up employment.

The aim of this paper is to examine the extent to which the labour market behaviour of marginally attached workers is similar to that of the unemployed. We use longitudinal data from the Survey of Employment and Unemployment Patterns (SEUP), which provides detailed information on the characteristics of individuals as well as their labour market experiences, to compare dynamic behaviour across labour market groups, for example, the probability of moving into employment. We find that in some respects the dynamic behaviour of the marginally attached is similar to that of the unemployed, but in others it is quite different. Accordingly, the most appropriate measure of labour supply depends on the policy question, and consequently a range of measures should be considered.

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