Unemployment has traditionally been used to measure the relative tightness of the labour market. As an example, the Reserve Bank of Australia (RBA) uses theory associated with the non-accelerating inflation rate of unemployment (NAIRU) as a way of organising its thoughts and developing policy on inflation. At the estimated NAIRU the economy is thought to be neither too hot nor too cold. Estimates of the NAIRU depend on the behaviour of the actual unemployment rate.

The ABS data separates the working-age population into three categories. The first two categories—those who are considered employed and those who are considered unemployed—combine to make up the labour force. Those who do not meet the criteria for being either employed or unemployed fall into the third category, not in the labour force (NILF). These categories date back to the 1950s.

The official unemployment rate is calculated as a portion of the labour force, not of the entire working-age population. As such, those determined to be NILF are not counted in these figures, regardless of whether or not they do in fact want to work. This makes the official figure for unemployment particularly problematic—if discouraged workers and others who want to work but are not considered unemployed were included in this official figure, it would more than triple.