During this second period the industrial importance of bond labour, as compared with free, was sensibly diminished year by year owing to the influx of voluntary immigrants, although in actual numbers the convict population, including persons on ticket-of-leave, even at the close of the period, exceeded the free adult population, immigrant and emancipist combined. The bond population was divided into three distinct classes much the same as in the previous period: those supported by the Government, those assigned to private employers, and those who, being released on ticket-of-leave, maintained themselves by their own exertions.

The convicts retained by Government were of various grades: the lowest were those sent to a penal settlement or working in the ironed gangs; the next grade were employed in the erection of Government buildings or at work on the Government farms; and the highest grade were the constables, clerks, overseers, and others holding positions which, ordinarily, would have been filled by free persons. The convicts in the penal settlements and in the ironed gangs were, both in New South Wales and Van Diemen's Land, almost without exception persons suffering for offences committed after transportation; occasionally prisoners transported for peculiarly serious and revolting crimes were on their arrival in Australia placed in irons or sent to a penal settlement, but this procedure was of doubtful legality and not often resorted to.