\n\t\t\t\t\t\t\tJoyce Tan<\/strong> \n\t\t\t\t\t\t<\/p>\n
labour market, monetary policy<\/p>\n
\t\t\t\t\t\t <\/p>\n
\t\t\t\t\t\t\t\t![\"\"\/](\"https:\/\/www.europesays.com\/ie\/wp-content\/uploads\/2025\/10\/bulletin-2025-10--02.jpg\")
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<\/p>\n
\n\t\t\t\t\t\t\t\t\tPhoto: Delmaine Donson \u2013 Getty Images
\n\t\t\t\t\t\t\t\t<\/p>\n
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<\/p>\n
\t\t\t\t\t\tAbstract<\/p>\n
\n\t\t\t\t\tThe RBA\u0092s assessment of spare capacity in the labour market incorporates the signal from a broad suite
\n\t\t\t\t\tof indicators. The ratio of job vacancies to unemployed persons, which attempts to assess the imbalance
\n\t\t\t\t\tbetween unmet labour demand and the labour supply available to meet this demand, is a standard measure of
\n\t\t\t\t\tspare capacity in the labour market. One shortcoming of this measure is that it implicitly assumes that job
\n\t\t\t\t\tvacancies are only filled by the unemployed. In practice, job vacancies are also filled by other job
\n\t\t\t\t\tsearchers who may be outside the labour force or searching on the job. This article describes the
\n\t\t\t\t\tconstruction and characteristics of a more comprehensive measure of job searchers (the Searchers Index) that
\n\t\t\t\t\tconsiders both the unemployed and those who are not classified as being unemployed. The Searchers Index
\n\t\t\t\t\tallows us to construct an alternative measure of spare capacity (the vacancies-to-searchers ratio), which
\n\t\t\t\t\texhibits different properties to the vacancies-to-unemployed ratio. The vacancies-to-searchers ratio will be
\n\t\t\t\t\tincluded in the suite of indicators that we monitor to assess spare capacity in the labour market moving
\n\t\t\t\t\tforward.
\n\t\t\t\t\t\t<\/p>\n
\t\t\t\t\tIntroduction<\/p>\n
Understanding the extent of spare capacity (or conversely, tightness) in the labour market is
\n\t\t\t\t\t\timportant for the RBA\u0092s dual mandate of price stability and full employment. First, the
\n\t\t\t\t\t\tStatement on the Conduct of Monetary Policy requires the RBA to communicate its assessment
\n\t\t\t\t\t\tof how labour market conditions stand relative to full employment (Ballantyne, Sharma and Taylor
\n\t\t\t\t\t\t2024). Second, tightness in the labour market can impact the degree of inflationary pressures in the
\n\t\t\t\t\t\teconomy. RBA staff therefore closely monitor a number of measures of tightness when assessing
\n\t\t\t\t\t\tconditions in the labour market. One commonly used measure is the ratio of job
\n\t\t\t\t\t\tvacancies to unemployed persons (the V-U ratio), which attempts to gauge the mismatch between labour
\n\t\t\t\t\t\tdemand (proxied by job vacancies) and the potential labour supply that could meet this demand
\n\t\t\t\t\t\t(proxied by the unemployed). The V-U ratio has eased since its mid-2022 peak but continues to be well
\n\t\t\t\t\t\tabove pre-pandemic levels.<\/p>\n
A key shortcoming of the V-U ratio is that the unemployed are only a subset of all job searchers and
\n\t\t\t\t\t\thence the ratio effectively ignores how searchers outside of unemployment contribute to the filling
\n\t\t\t\t\t\tof vacancies. The Australian Bureau of Statistics (ABS) defines the unemployed as non-working
\n\t\t\t\t\t\tindividuals aged 15\u00a0years and over who have either actively looked for work in the previous four
\n\t\t\t\t\t\tweeks and were available to work in the reference week of the Labour Force Survey or were waiting to
\n\t\t\t\t\t\tstart a job within four weeks from the end of the reference week but could have started working
\n\t\t\t\t\t\tduring the reference week had the job been available. However, many people fall outside this
\n\t\t\t\t\t\tdefinition despite being able to fill vacancies, such as those who are looking for work but only
\n\t\t\t\t\t\tpassively, or those actively looking for work but who were not available to start work in the
\n\t\t\t\t\t\treference week. Furthermore, the V-U ratio places equal weight on each unemployed person despite some
\n\t\t\t\t\t\tunemployed people (e.g. those who have remained unemployed for a long time) having a persistently
\n\t\t\t\t\t\tlower probability of finding a job.<\/p>\n
To address these limitations, I construct a more comprehensive measure of \u0091effective job
\n\t\t\t\t\t\tsearchers\u0092 called the \u0091Searchers Index\u0092 (SI). This measure of effective searchers not
\n\t\t\t\t\t\tonly accounts for the unemployed but also accounts for those \u0091not in the labour force\u0092
\n\t\t\t\t\t\t(NILF) and those who are employed who may be searching on-the-job. To do this, I first disaggregate
\n\t\t\t\t\t\tthe working age population into 11\u00a0labour market cohorts. Using microdata from the ABS\u0092
\n\t\t\t\t\t\tLongitudinal Labour Force Survey, I calculate each cohort\u0092s share of the population and their
\n\t\t\t\t\t\tprobability of finding a job \u2013 their job-finding rate (JFR) \u2013 over time (which is used to
\n\t\t\t\t\t\tconstruct the SI). I then apply weights to each labour market cohort to capture variation in these
\n\t\t\t\t\t\tJFRs and population shares, resulting in a measure of \u0091effective searchers\u0092 in the economy.
\n\t\t\t\t\t\tDue to limitations on data availability, the sample begins in 2001.<\/p>\n
Several overseas studies have also attempted to construct measures of effective job searchers. They
\n\t\t\t\t\t\thave also first divided the population into several cohorts of searchers. In these studies, the
\n\t\t\t\t\t\tweight applied to each cohort is fixed at either the ratio of the cohort\u0092s JFR at a point in
\n\t\t\t\t\t\ttime or the cohort\u0092s long-run average JFR relative to that of a chosen base cohort (Abraham,
\n\t\t\t\t\t\tHaltiwanger and Rendell 2020; Byrne and Conefrey 2017; Heise, Pearce and Weber 2024; Hornstein,
\n\t\t\t\t\t\tKudlyak and Lange 2014; Kudlyak 2017). The key disadvantage of using a fixed weight is that the
\n\t\t\t\t\t\tchosen weight may become less reflective of the cohort over time. My approach extends the literature
\n\t\t\t\t\t\tby using Australian microdata and by allowing the weights to vary over time.<\/p>\n
In this article, I discuss different cohorts of job searchers and describe how the SI is constructed
\n\t\t\t\t\t\tusing these cohorts. I find that drawing together information on job vacancies and effective
\n\t\t\t\t\t\tsearchers into a vacancies-to-searchers ratio (V-S ratio) leads to a new and more comprehensive
\n\t\t\t\t\t\tindicator of labour market tightness.<\/p>\n
\t\t\t\t\tJob searchers in Australia<\/p>\n
There are different types of job searchers in the economy, each with varying degrees of attachment to
\t\t\t\t\t\t
Figure 1: Labour Market Cohorts<\/p>\n
I initially divide the working age population into the three main labour market states \u2013 the
I consider how each cohort\u0092s share of the population and JFR (which are inputs into the SI)
There is considerable variation in relative JFRs and population shares across cohorts, which lends
\t\t\t\t\t\t
Graph 1<\/p>\n
Cohorts with lower relative JFRs tend to have larger population shares (and vice versa). For instance,
\t\t\t\t\t\t
Graph 2<\/p>\n
\t\t\t\t\t\t
Graph 3<\/p>\n
Changes in population shares over time reflect broader demographic and labour market trends. The
\t\t\t\t\tHow is the Searchers Index constructed?<\/p>\n The SI is constructed broadly as follows (with further detail on the methodology provided in
<\/p>\n
<\/p>\n
\n\t\t\t\t\t<\/ol>\n \t\t\t\t\tWhat does the Searchers Index tell us?<\/p>\n The SI and the unemployment rate move together, which suggests they both capture broad trends in
\t\t\t\t\t\t
Graph 4<\/p>\n
The SI is considerably less cyclical compared with the unemployment rate. This is likely because the
The SI captures longer run trends in the participation rate and employment-to-population ratio, as
\t\t\t\t\t\t
Graph 5<\/p>\n
In general, the redistribution of workers from a cohort with a higher relative JFR to one with a lower
These aggregated contributions can mask differences across the underlying cohorts. For example, within
\t\t\t\t\t\t
Graph 6<\/p>\n
The medium-term unemployed, who typically capture cyclical unemployment, look to be driving most of
\t\t\t\t\t\t
Graph 7<\/p>\n
\t\t\t\t\tWhat does the V-S ratio tell us?<\/p>\n The SI allows us to construct a more comprehensive measure of labour market tightness called the V-S
The V-S and V-U ratios tend to co-move as the unemployment rate and SI are correlated (Graph\u00a08).
\t\t\t\t\t\t
Graph 8<\/p>\n
Given that the V-S ratio captures a much broader set of potential job searchers, we intend to include
\t\t\t\t\t\tConclusion<\/p>\n The SI tends to move together with the unemployment rate, although it exhibits considerably less
\t\t\t\t\tAppendix\u00a0A: Description of labour market cohorts and further detail on the Searchers Index Table\u00a0A.1 provides descriptions of the 11\u00a0labour market cohorts underlying the Searchers
\t\t\t\t\t\t
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Sources: ABS; RBA.<\/p>\n
\n\t\t\t\t\t\t\t\t\t<\/td>\n
\t\t\t\t\t\tFurther detail on the construction of the Searchers Index<\/p>\n The SI is constructed using a chained Tornqvist index. Growth in the SI is defined as a weighted
Where
The contribution of cohort
\u2211t=1Txi,tlog\u2061Pop\u00a0sharei,tPop\u00a0sharei,t-1<\/p>\n Each cohort\u0092s contribution to the change in the SI between period
\t\t\t\t\t
\t\t\t\t\t
<\/p>\n \t\t\t\t\t\t\tReferences<\/p>\n Abraham KG, JC Haltiwanger and LE Rendell (2020), \u0091How Tight Is the US Labor
ABS (Australian Bureau of Statistics) (2025), \u0091Multiple Job-holders\u0092,
Ballantyne A, A Sharma and T Taylor (2024), \u0091Assessing
Byrne S and T Conefrey (2017), \u0091A Non-employment Index for Ireland\u0092, Central
Cassidy N, I Chan, A Gao and G Penrose (2020), \u0091Long-term
Ellis L (2021), \u0091Innovation and Dynamism
Heise S, J Pearce and J Weber (2024), \u0091Wage Growth and Labour Market Tightness\u0092,
Hornstein A, M Kudlyak and F Lange (2014), \u0091Measuring Resource Utilisation in the Labour
Kudlyak M (2017), \u0091Measuring Labor Utilization: The Non-Employment Index\u0092,
McCarthy M (forthcoming), \u0091Measuring Effective Searchers with Quantity Indexes\u0092,
RBA (2025), \u0091Section
\t\t\t\t\t\t
<\/p>\n
\n\t\t\t\t\t\tthe labour market and hence impacts on labour market outcomes. For example, an individual who has
\n\t\t\t\t\t\tbeen unemployed for a short period of time is more attached to the workforce than someone outside the
\n\t\t\t\t\t\tlabour force who has reported that they are unable to work or has retired. Figure\u00a01 shows a
\n\t\t\t\t\t\tdisaggregation of the working age population into 11\u00a0mutually exclusive labour market cohorts,
\n\t\t\t\t\t\tor types of searchers, based on their likely attachment to the labour force or, for the employed,
\n\t\t\t\t\t\ttheir assessed incentive to find another job (see Appendix\u00a0A<\/a>
\n\t\t\t\t\t\tfor further detail on these cohorts).<\/p>\n
\n\t\t\t\t\t\t\t
<\/p>\n
\n\t\t\t\t\t\t\t
\n\t\t\t\t\t\t\t![\"Flowchart](\"https:\/\/www.rba.gov.au\/publications\/bulletin\/2025\/oct\/images\/figure-1025-2-01.svg\")
<\/p>\n
\n\t\t\t\t\t\temployed, unemployed and those not in the labour force. In turn, I split the employed into those who
\n\t\t\t\t\t\tare underemployed and those who are not (i.e. the \u0091fully employed\u0092); the underemployed
\n\t\t\t\t\t\tlikely have a greater incentive to switch jobs or find an additional job as they tend to be
\n\t\t\t\t\t\tdissatisfied with their current working hours. I generally group the unemployed based on their
\n\t\t\t\t\t\tduration of unemployment, split into short-, medium- and long-term unemployed. Finally, I
\n\t\t\t\t\t\tcategorise those not in the labour force into those who are conceptually most similar to the
\n\t\t\t\t\t\tunemployed but who do not meet the criteria to be officially classified as being unemployed (i.e.
\n\t\t\t\t\t\tthose who actively or passively looked for work) and those less likely to engage in job search
\n\t\t\t\t\t\tactivities (i.e. those who have reported that they are \u0091not looking\u0092 for work or
\n\t\t\t\t\t\t\u0091unable to work or retired\u0092). I split out the individuals who are waiting to start a job
\n\t\t\t\t\t\t(classified as either unemployed or being outside the labour force) because their attachment to a job
\n\t\t\t\t\t\tmeans they are much more likely to find a job compared with other cohorts.<\/p>\n
\n\t\t\t\t\t\tvaries. For the employed, the JFR refers to the probability that they either switch a job or gain an
\n\t\t\t\t\t\tadditional job over a one-month period. For the unemployed or those outside the labour
\n\t\t\t\t\t\tforce, the JFR is the likelihood that the individual transitions into employment over the month. The
\n\t\t\t\t\t\tJFRs for each cohort subsequently imply a relative JFR for the cohort, which is defined as
\n\t\t\t\t\t\tthe cohort\u0092s JFR as a ratio to the average JFR for the population (where the average JFR can be
\n\t\t\t\t\t\tinterpreted as the probability that the average individual in the population is able to secure a
\n\t\t\t\t\t\tjob).<\/p>\n
\n\t\t\t\t\t\tsupport to the differentiated treatment of each cohort in the SI. Relative JFRs are generally
\n\t\t\t\t\t\thighest for cohorts who are waiting to start a job; these individuals are already attached to a job
\n\t\t\t\t\t\tand are therefore most likely to transition into employment within a month (Graph\u00a01). Those who
\n\t\t\t\t\t\thave been unemployed for shorter durations (the short- and medium-term unemployed) and cohorts
\n\t\t\t\t\t\toutside the labour force who are actively or passively looking for work have the next-highest
\n\t\t\t\t\t\trelative JFRs. For example, the short-term unemployed are around seven times more likely to find a
\n\t\t\t\t\t\tjob in the month than the average individual in the population. By contrast, the relative JFRs of the
\n\t\t\t\t\t\temployed, particularly the fully employed, are low; the fully employed are around 30\u00a0per\u00a0cent less likely
\n\t\t\t\t\t\tto switch jobs or find an additional job than an average individual in the population. In general,
\n\t\t\t\t\t\tthis is likely because the fully employed have less incentive to switch jobs or find a secondary job
\n\t\t\t\t\t\tif they are already satisfied with their current working hours. As expected, those who are long-term
\n\t\t\t\t\t\tunemployed or who are outside the labour force and have indicated that they are either unable to work
\n\t\t\t\t\t\tor retired or not looking for work also have low JFRs.<\/p>\n
\n\t\t\t\t\t\t\t
<\/p>\n
\n\t\t\t\t\t\t\t
\n\t\t\t\t\t\t\t![\"A](\"https:\/\/www.rba.gov.au\/publications\/bulletin\/2025\/oct\/images\/graph-1025-2-01.svg\")
<\/p>\n
\n\t\t\t\t\t\tthe fully employed account for a sizeable share of the population (around 60\u00a0per\u00a0cent) but
\n\t\t\t\t\t\thave a relatively low JFR, as do those that are outside the labour force who have either reported
\n\t\t\t\t\t\tthat they are not looking for work or are unable to work or retired (who account for 14\u00a0and
\n\t\t\t\t\t\t18\u00a0per\u00a0cent of the working age population respectively) (Graph\u00a02). Conversely, those
\n\t\t\t\t\t\twaiting to start a job have the highest relative JFRs but account for a very small share (around
\n\t\t\t\t\t\t0.6\u00a0per\u00a0cent) of the population (Graph\u00a03).<\/p>\n
\n\t\t\t\t\t\t\t
<\/p>\n
\n\t\t\t\t\t\t\t
\n\t\t\t\t\t\t\t![\"A](\"https:\/\/www.rba.gov.au\/publications\/bulletin\/2025\/oct\/images\/graph-1025-2-02.svg\")
<\/p>\n
\n\t\t\t\t\t\t\t
<\/p>\n
\n\t\t\t\t\t\t\t
\n\t\t\t\t\t\t\t![\"A](\"https:\/\/www.rba.gov.au\/publications\/bulletin\/2025\/oct\/images\/graph-1025-2-03.svg\")
<\/p>\n
\n\t\t\t\t\t\tincreased rate of participation in the workforce over time, especially by women, has contributed to
\n\t\t\t\t\t\tthe share of the population that is fully employed rising to be around its highest level since the
\n\t\t\t\t\t\tearly 2000s; the fully employed share of the population has remained around this elevated level since
\n\t\t\t\t\t\tlate 2022. Relatedly, the share of the population that is outside the labour force and reportedly not
\n\t\t\t\t\t\tlooking for work has trended down. An ageing population has also contributed to the upwards trend in
\n\t\t\t\t\t\tthe share of the population who are unable to work or retired. The downwards trend in the short-term
\n\t\t\t\t\t\tunemployed share (which typically captures the unemployed who are between jobs) could partially
\n\t\t\t\t\t\treflect the long-run decline in the job mobility rate and, in turn, a general decline in business
\n\t\t\t\t\t\tdynamism (Ellis 2021).<\/p>\n
\n\t\t\t\t\t\tAppendix\u00a0A<\/a>):<\/p>\n
<\/p>\n
\n\t\t\t\t\t\t\tabove, each cohort\u0092s share of the population and relative JFR over time is calculated.<\/li>\n
\n\t\t\t\t\t\t\tgrowth in each cohort\u0092s share of the population in that month. The weight assigned to each
\n\t\t\t\t\t\t\tcohort is given by their share of total hires and is allowed to vary over time. A cohort\u0092s
\n\t\t\t\t\t\t\tshare of total hires is equal to the product of their relative JFR and their share of the
\n\t\t\t\t\t\t\tpopulation. This means the weight assigned to a cohort
\n\t\t\t\t\t\t\tincreases with how intensely each cohort searches for a job (proxied by their relative JFR) and
\n\t\t\t\t\t\t\ttheir relative importance (or their share of the population).<\/li>\n
\n\t\t\t\t\t\t\tindex (i.e. the SI). The SI can be decomposed into the contributions of each underlying cohort;
\n\t\t\t\t\t\t\tsome of these are presented below. Each cohort\u0092s contribution to the SI mechanically
\n\t\t\t\t\t\t\tincreases (decreases) alongside an increase (decrease) in their share of the population.<\/li>\n
\n\t\t\t\t\t\tlabour market tightness (Graph\u00a04). As with the unemployment rate, a decline (increase) in the SI
\n\t\t\t\t\t\tis generally indicative of tighter (looser) conditions in the labour market, all else equal. For the
\n\t\t\t\t\t\tSI, this is because it suggests that there are fewer (more) job searchers available to meet
\n\t\t\t\t\t\tfirms\u0092 demand for labour (as proxied, for instance, by job vacancies). Both series tend to be
\n\t\t\t\t\t\tcountercyclical; the SI tends to increase during a labour market downturn (defined as a period during
\n\t\t\t\t\t\twhich the unemployment rate is rising) and decline during the subsequent recovery. That said, there
\n\t\t\t\t\t\tare periods in which these measures evolve differently, which may point to differences in effective
\n\t\t\t\t\t\tsearchers among the unemployed and other cohorts. For example, while the SI has declined since early
\n\t\t\t\t\t\t2024, the unemployment rate has risen over this period. This implies that while there were more
\n\t\t\t\t\t\tunemployed effective searchers, there was also an offsetting reduction in searchers outside of
\n\t\t\t\t\t\tunemployment such that the measure of effective searchers declined in aggregate. The SI has
\n\t\t\t\t\t\tstabilised in recent months alongside several other labour market indicators such as job vacancies
\n\t\t\t\t\t\tand measures of employment intentions. Together, these outcomes highlight the importance of
\n\t\t\t\t\t\tconsidering a range of indicators besides the unemployment rate when assessing labour market
\n\t\t\t\t\t\tconditions.<\/p>\n
\n\t\t\t\t\t\t\t
<\/p>\n
\n\t\t\t\t\t\t\t
\n\t\t\t\t\t\t\t![\"A](\"https:\/\/www.rba.gov.au\/publications\/bulletin\/2025\/oct\/images\/graph-1025-2-04.svg\")
<\/p>\n
\n\t\t\t\t\t\tSI captures other labour market cohorts who help to dampen the cyclicality of the unemployed. In a
\n\t\t\t\t\t\tdownturn, the unemployed share of the population tends to rise, resulting in an increasing
\n\t\t\t\t\t\tunemployment rate. However, there could also be a decline in the share of on-the-job searchers during
\n\t\t\t\t\t\ta downturn such that the SI may not rise as much as the unemployment rate. If we only take signal
\n\t\t\t\t\t\tfrom the unemployment rate (for a given level of vacancies), we may therefore overstate the easing in
\n\t\t\t\t\t\tthe labour market relative to the case where we also considered the SI (which accounts for changes in
\n\t\t\t\t\t\tsearch activity among, for example, the employed).<\/p>\n
\n\t\t\t\t\t\ttrends in cohorts\u0092 population shares directly influence their contributions to the SI (as
\n\t\t\t\t\t\tdescribed above). This can be observed by examining, for simplicity, the contributions of the three
\n\t\t\t\t\t\tmain labour market states (i.e. employment, unemployment and not in the labour force) to the SI. The
\n\t\t\t\t\t\tcontribution of the employed has trended up while the contribution of those outside the labour force
\n\t\t\t\t\t\thas trended down, consistent with the upwards trends in the employment-to-population ratio and the
\n\t\t\t\t\t\tparticipation rate (Graph\u00a05). The overall contributions of the employed and NILF cohorts to the
\n\t\t\t\t\t\tSI are largely influenced by these long-run trends. By contrast, the contribution of the unemployed
\n\t\t\t\t\t\tis notably countercyclical.<\/p>\n
\n\t\t\t\t\t\t\t
<\/p>\n
\n\t\t\t\t\t\t\t
\n\t\t\t\t\t\t\t![\"A](\"https:\/\/www.rba.gov.au\/publications\/bulletin\/2025\/oct\/images\/graph-1025-2-05.svg\")
<\/p>\n
\n\t\t\t\t\t\trelative JFR tends to weigh on overall search activity and the SI. Over time, as workers have
\n\t\t\t\t\t\tincreasingly moved into employment (which tends to be associated with a lower relative JFR),
\n\t\t\t\t\t\tconsistent with an upwardly trending employment-to-population ratio, the SI has trended down. This is
\n\t\t\t\t\t\tfurther shown in Graph\u00a05, with the general downward trends in the contributions of the NILF and
\n\t\t\t\t\t\tunemployed cohorts (who tend to have higher relative JFRs) dominating the upwards trend in the
\n\t\t\t\t\t\tcontribution of the employed, who tend to have lower relative JFRs. Overall, the slight decline in
\n\t\t\t\t\t\tthe SI since early 2024 largely reflects a reduction in effective searchers who are classified as
\n\t\t\t\t\t\tbeing outside the labour force.<\/p>\n
\n\t\t\t\t\t\tthe employed group, the fully employed and underemployed cohorts behave in opposing ways over the
\n\t\t\t\t\t\tbusiness cycle (Graph\u00a06). Similar to the unemployed, the contribution of the underemployed tends
\n\t\t\t\t\t\tto move countercyclically, as observed during the global financial crisis, as the underemployment
\n\t\t\t\t\t\trate typically rises when the labour market eases. By contrast, the contribution of the fully
\n\t\t\t\t\t\temployed tends to fall when labour market conditions soften.<\/p>\n
\n\t\t\t\t\t\t\t
<\/p>\n
\n\t\t\t\t\t\t\t
\n\t\t\t\t\t\t\t![\"A](\"https:\/\/www.rba.gov.au\/publications\/bulletin\/2025\/oct\/images\/graph-1025-2-06.svg\")
<\/p>\n
\n\t\t\t\t\t\tthe cyclicality in the overall contribution of the unemployed (Graph\u00a07). The contributions of
\n\t\t\t\t\t\tmost other unemployed cohorts and cohorts outside the labour force do not tend to respond
\n\t\t\t\t\t\tsystematically to the business cycle.<\/p>\n
\n\t\t\t\t\t\t\t
<\/p>\n
\n\t\t\t\t\t\t\t
\n\t\t\t\t\t\t\t![\"A](\"https:\/\/www.rba.gov.au\/publications\/bulletin\/2025\/oct\/images\/graph-1025-2-07.svg\")
<\/p>\n
\n\t\t\t\t\t\tratio. As with the V-U ratio, the V-S ratio attempts to capture the balance between the demand for
\n\t\t\t\t\t\tlabour (proxied by job vacancies) and the potential supply of labour that could meet this demand.
\n\t\t\t\t\t\tThat said, unlike the V-U ratio, the V-S ratio recognises that vacancies are not only filled by the
\n\t\t\t\t\t\tunemployed but also by other job searchers who are either already employed or who are outside the
\n\t\t\t\t\t\tlabour force.<\/p>\n
\n\t\t\t\t\t\tBoth measures suggest that tightness in the labour market increased significantly after mid-2020 to
\n\t\t\t\t\t\treach a record high in mid-2022 and that labour market tightness has subsequently eased. More
\n\t\t\t\t\t\trecently, the V-S ratio looks to have stabilised somewhat while the V-U ratio has declined further.
\n\t\t\t\t\t\tBoth ratios remain at levels that are above pre-pandemic outcomes. Despite the upwards trends in
\n\t\t\t\t\t\tthese series, these indicators provide some evidence that conditions in the labour market remain
\n\t\t\t\t\t\tsomewhat tight.<\/p>\n
\n\t\t\t\t\t\t\t
<\/p>\n
\n\t\t\t\t\t\t\t
\n\t\t\t\t\t\t\t![\"A](\"https:\/\/www.rba.gov.au\/publications\/bulletin\/2025\/oct\/images\/graph-1025-2-08.svg\")
<\/p>\n
\n\t\t\t\t\t\t\tthe V-S ratio in the suite of measures of spare capacity we monitor on a regular basis. Furthermore,
\n\t\t\t\t\t\t\twe plan to investigate its relationship with wages growth and inflation as some overseas studies have
\n\t\t\t\t\t\t\tfound that the V-S ratio could be a relatively good predictor of these variables (Heise, Pearce and
\n\t\t\t\t\t\t\tWeber 2024).<\/p>\n
\n\t\t\t\t\t\t\tcyclicality. By considering those searching on-the-job or while outside the labour force, it accounts
\n\t\t\t\t\t\t\tfor the possibility that an increase in unemployed searchers could be offset by a decline in
\n\t\t\t\t\t\t\tsearchers from another cohort. This dampens the degree to which effective searchers changes over time
\n\t\t\t\t\t\t\trelative to that implied by the unemployment rate. The SI captures the net effect of movements of
\n\t\t\t\t\t\t\tworkers between cohorts with different (relative) JFRs, including the impact of broader labour market
\n\t\t\t\t\t\t\ttrends. The V-S ratio constructed using the SI and the V-U ratio evolve similarly; both suggest that
\n\t\t\t\t\t\t\tlabour market conditions remained somewhat tight over 2025. Nevertheless, it is important to note
\n\t\t\t\t\t\t\tthat the RBA considers a number of labour market indicators when forming its assessment of full
\n\t\t\t\t\t\t\temployment as each measure has its own limitations, and that the V-S ratio is but one of many metrics
\n\t\t\t\t\t\t\tthat can be included in the RBA\u0092s toolkit.<\/p>\n
\n\t\t\t\t\tCohort descriptions<\/p>\n
\n\t\t\t\t\t\tIndex.<\/p>\n
\n\t\t\t\t\t\t\tTable\u00a0A.1: Labour Market Cohorts
\n\t\t\t\t\t\t\t
<\/p>\n
\n\t\t\t\t\t\t\t\t\tCohort
\n\t\t\t\t\t\t\t\t\tDefinition
\n\t\t\t\t\t\t\t\t<\/tr>\n
\n\t\t\t\t\t\t\t
\n\t\t\t\t\t\t\t
<\/p>\n
\n\t\t\t\t\t\t\t\t\tEmployed
\n\t\t\t\t\t\t\t\t<\/tr>\n
\n\t\t\t\t\t\t\t\t\tUnderemployed
<\/p>\nConsistent with the ABS definition of underemployment, this category includes those
\n\t\t\t\t\t\t\t\t\t\twho are working part-time and are willing and able to work more hours and those who
\n\t\t\t\t\t\t\t\t\t\tare usually working full-time but who worked less than 35\u00a0hours in the reference
\n\t\t\t\t\t\t\t\t\t\tweek for economic reasons (e.g. there was insufficient work available or they were
\n\t\t\t\t\t\t\t\t\t\tstood down).<\/td>\n
\n\t\t\t\t\t\t\t\t<\/tr>\n
\n\t\t\t\t\t\t\t\t\tFully employed
<\/p>\nAny employed person who does not fall within the ABS definition of underemployment.
\n\t\t\t\t\t\t\t\t\t<\/td>\n
\n\t\t\t\t\t\t\t\t<\/tr>\n
\n\t\t\t\t\t\t\t\t\tUnemployed
\n\t\t\t\t\t\t\t\t<\/tr>\n
\n\t\t\t\t\t\t\t\t\tWaiting to start a job
<\/p>\nAn unemployed person who is waiting to start a job in the next four weeks and who was
\n\t\t\t\t\t\t\t\t\t\tavailable to work in the reference week if the job was available then.<\/td>\n
\n\t\t\t\t\t\t\t\t<\/tr>\n
\n\t\t\t\t\t\t\t\t\tShort-term unemployed
<\/p>\nThose who have been unemployed for less than four weeks and are not an unemployed
\n\t\t\t\t\t\t\t\t\t\tperson waiting to start a job.<\/td>\n
\n\t\t\t\t\t\t\t\t<\/tr>\n
\n\t\t\t\t\t\t\t\t\tMedium-term unemployed
<\/p>\nThose who have been unemployed for four to 52\u00a0weeks and are not an unemployed
\n\t\t\t\t\t\t\t\t\t\tperson waiting to start a job.<\/td>\n
\n\t\t\t\t\t\t\t\t<\/tr>\n
\n\t\t\t\t\t\t\t\t\tLong-term unemployed
<\/p>\nThose who have been unemployed for more than 52\u00a0weeks and are not an unemployed
\n\t\t\t\t\t\t\t\t\t\tperson waiting to start a job.<\/td>\n
\n\t\t\t\t\t\t\t\t<\/tr>\n
\n\t\t\t\t\t\t\t\t\tNot in the labour force
\n\t\t\t\t\t\t\t\t<\/tr>\n
\n\t\t\t\t\t\t\t\t\tActively looking
<\/p>\nThose who have taken active steps to seek work (e.g. by applying to vacancies or
\n\t\t\t\t\t\t\t\t\t\tinterviewing) but who were not available to start in the reference week and therefore
\n\t\t\t\t\t\t\t\t\t\twere not classified as \u0091unemployed\u0092.<\/td>\n
\n\t\t\t\t\t\t\t\t<\/tr>\n
\n\t\t\t\t\t\t\t\t\tPassively looking
<\/p>\nThose who have taken some steps to seek work (e.g. by looking on job advertisement
\n\t\t\t\t\t\t\t\t\t\tplatforms).<\/td>\n
\n\t\t\t\t\t\t\t\t<\/tr>\n
\n\t\t\t\t\t\t\t\t\tWaiting to start a job
<\/p>\nA person who is waiting to start a job but who did not meet the definition of an
\n\t\t\t\t\t\t\t\t\t\tunemployed person waiting to start a job described above.<\/td>\n
\n\t\t\t\t\t\t\t\t<\/tr>\n
\n\t\t\t\t\t\t\t\t\tNot looking
<\/p>\nThose who have reported that they have not taken any steps to look for work. <\/td>\n
\n\t\t\t\t\t\t\t\t<\/tr>\n
\n\t\t\t\t\t\t\t\t\tUnable to work or retired
<\/p>\nThose who are permanently unable to work, institutionalised or at a boarding school
\n\t\t\t\t\t\t\t\t\t\tor who are permanently not intending to work and aged 65\u00a0and over.<\/td>\n
\n\t\t\t\t\t\t\t\t<\/tr>\n
\n\t\t\t\t\t\t\t
\n\t\t\t\t\t\t\t
<\/p>\n
<\/p>\n
\n\t\t\t\t\t\t\t\t\t\t
<\/p>\n
\n\t\t\t\t\t\t\t\t<\/tr>\n
\n\t\t\t\t\t\t\t
<\/p>\n
\n\t\t\t\t\t\t\taverage of the percentage growth in each cohort\u0092s share of the population (Equation 1). The
\n\t\t\t\t\t\t\tweight applied to each cohort is a simple average of its share of total hires in the current and
\n\t\t\t\t\t\t\tprevious months. As a cohort\u0092s share of hires can be expressed as the product of its relative
\n\t\t\t\t\t\t\tJFR and population share, cohorts are effectively weighted by (a proxy of) how intensely they search
\n\t\t\t\t\t\t\tfor work and their importance in the population respectively. In particular, the share of total hires
\n\t\t\t\t\t\t\tof cohort
\n\t\t\t\t\t\t\ti
\n\t\t\t\t\t\t\tat time
\n\t\t\t\t\t\t\tt
\n\t\t\t\t\t\t\tcan be written as
\n\t\t\t\t\t\t\thiresi,ttotal\u00a0hirest=JFRi,t\u00d7Populationi,tJFRt\u00d7Populationt=Relative\u00a0JFRi,t\u00d7Population\u00a0sharei,t.
\n\t\t\t\t\t\t\tEquation\u00a01 implies that the (log) SI in month
\n\t\t\t\t\t\t\tT
\n\t\t\t\t\t\t\tis the sum
\n\t\t\t\t\t\t\tof the cumulative contributions of each cohort to the SI over time given an arbitrary and unobserved
\n\t\t\t\t\t\t\tinitial level for the SI
\n\t\t\t\t\t\t\t(SI0)
\n\t\t\t\t\t\t\t(Equation\u00a02).
\n\t\t\t\t\t\t<\/p>\n
\n\t\t\t\t\t\t\t
\n\t\t\t\t\t\t\t\tlog\u2061
\n\t\t\t\t\t\t\t\t\tSItSIt-1
\n\t\t\t\t\t\t\t\t=\u2211i=1nxi,tlog\u2061Pop\u00a0sharei,tPop\u00a0sharei,t-1
\n\t\t\t\t\t\t\t
\n\t\t\t\t\t\t\t\t(1)
\n\t\t\t\t\t\t<\/p>\n
\n\t\t\t\t\t\t\tlog\u2061
\n\t\t\t\t\t\t\t\tSIT=\u2211i=1n\u2211t=1Txi,tlog\u2061Pop\u00a0sharei,tPop\u00a0sharei,t-1+log\u2061SI0(2)<\/p>\n
\n\t\t\t\t\t\t\tn
\n\t\t\t\t\t\t\tis the number of cohorts,
\n\t\t\t\t\t\t\txi,t
\n\t\t\t\t\t\t\tis the weight applied to cohort
\n\t\t\t\t\t\t\ti
\n\t\t\t\t\t\t\tand
\n\t\t\t\t\t\t\tPop\u00a0sharei,t
\n\t\t\t\t\t\t\tis cohort
\n\t\t\t\t\t\t\ti\u0092s
\n\t\t\t\t\t\t\tshare of the
\n\t\t\t\t\t\t\tpopulation at time
\n\t\t\t\t\t\t\tt.
\n\t\t\t\t\t\t<\/p>\n
\n\t\t\t\t\t\t\ti
\n\t\t\t\t\t\t\tto the (log) SI at time
\n\t\t\t\t\t\t\tT
\n\t\t\t\t\t\t\tgiven an initial level for the SI
\n\t\t\t\t\t\t\t(SI0)
\n\t\t\t\t\t\t\tis given by:
\n\t\t\t\t\t\t<\/p>\n
\n\t\t\t\t\t\t\tt-1
\n\t\t\t\t\t\t\tand period
\n\t\t\t\t\t\t\tt
\n\t\t\t\t\t\t\tis
\n\t\t\t\t\t\t\txi,tlog\u2061Pop\u00a0sharei,tPop\u00a0sharei,t-1.
\n\t\t\t\t\t\t\tSince
\n\t\t\t\t\t\t\txi,t
\n\t\t\t\t\t\t\tis the weight (or the average share of total hires) for cohort
\n\t\t\t\t\t\t\ti
\n\t\t\t\t\t\t\tand is non-negative, the sign of each
\n\t\t\t\t\t\t\tcohort\u0092s contribution is determined by the percentage change in their share of the population or
\n\t\t\t\t\t\t\tlog\u2061Pop\u00a0sharei,tPop\u00a0sharei,t-1.
\n\t\t\t\t\t\t<\/p>\n
\n\t\t\t\t\t\t
<\/p>\n
\n\t\t\t\t\t\t\t\tMarket?\u0092, Brookings Papers on Economic Activity, 51(Spring), pp 97\u2013165.<\/p>\n
\n\t\t\t\t\t\t\t\t5\u00a0September.<\/p>\n
\n\t\t\t\t\t\t\t\tFull Employment in Australia<\/a>\u0092, RBA Bulletin, April.<\/p>\n
\n\t\t\t\t\t\t\t\tBank of Ireland Economic Letters No 9.<\/p>\n
\n\t\t\t\t\t\t\t\tUnemployment in Australia<\/a>\u0092, RBA Bulletin, December.<\/p>\n
\n\t\t\t\t\t\t\t\tin the Post-pandemic World<\/a>\u0092, Speech to the Committee for the Economic
\n\t\t\t\t\t\t\t\tDevelopment of Australia, Webinar, 18\u00a0November.<\/p>\n
\n\t\t\t\t\t\t\t\tFederal Reserve Bank of New York Staff Reports No 1128, October.<\/p>\n
\n\t\t\t\t\t\t\t\tMarket\u0092, Federal Reserve Bank of Richmond Economic Quarterly, 100(1), pp 1\u201321.<\/p>\n
\n\t\t\t\t\t\t\t\tFederal Reserve Bank of San Francisco Economic Letter No 2017-08, March.<\/p>\n
\n\t\t\t\t\t\t\t\tWorking Paper.<\/p>\n
\n\t\t\t\t\t\t\t\t2.4\u00a0Assessment of Spare Capacity<\/a>\u0092, Statement on Monetary Policy,
\n\t\t\t\t\t\t\t\tAugust.<\/p>\n
\n\t\t\t\t\t\tUnderlying data for selected graphs<\/a>.
\n\t\t\t\t\t\tOther data may be available upon request via our
\n\t\t\t\t\t\tgeneral enquiry page<\/a>.
\n\t\t\t\t\t<\/p>\n","protected":false},"excerpt":{"rendered":"
23 October 2025
Joyce Tan
labour market, monetary policy
Photo: Delmaine…\n","protected":false},"author":2,"featured_media":141953,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[176],"tags":[79,18,19,17,227],"class_list":{"0":"post-141952","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-jobs","8":"tag-business","9":"tag-eire","10":"tag-ie","11":"tag-ireland","12":"tag-jobs"},"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@ie\/115427173182492711","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/posts\/141952","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/comments?post=141952"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/posts\/141952\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/media\/141953"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/media?parent=141952"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/categories?post=141952"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/tags?post=141952"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}