2.3 The Labour Market Flashcards
Unit 2 AOS 3
The labour market
The supply (provided by workers) and demand (determined by firms) for labour
Derived demand
The demand for labour and depends on demand for goods and services (aggregate demand). Has a positive relationship with demand for goods and services.
Cyclical unemployment
Between 1-12 months. Results from changes in economic activity over the business cycle.
Structural unemployment
Lasts 12+ months. Results from a mismatch between the jobs available and those looking for work due to a lack of skills or they live too far.
Frictional unemployment
Usually less than 1 month. Results from when people move between jobs in the labour market and out of the work force.
Underemployment
When people are employed (often part-time) but would like to work more hours and are available to do so.
Seasonal unemployment
Occurs during particular times of year because season patterns affect their jobs. Mainly tourism and agriculture sectors.
Hidden unemployment
People aren’t counted as unemployed but would likely work if given the opportunity, as they aren’t actively seeking employment.
The natural level of unemployment
The proportion of the workforce that voluntarily chooses to remain unemployed when the labour market is in equilibrium.
Non-involuntary unemployment
At full employment everyone who wants a job has one.
Rate of voluntary employment
estimated at 4-4.5% at full employment
Natural level of unemployment
The government’s macroeconomic goal at full employment. Represented by NAIRU to be at inflation at 4.5%.
NAIRU
Non-Accelerating Inflation Rate of Unemployment
Factors that can influence the total demand for labour
Level of economic activity, demand for individual firms’ product, employer expectations about the future state of the economy, productivity of labour vs other inputs, the relative cost of labour and capital, government economic policies, the industrial climate/conditions in firms’ industry, a shift toward industries mor reliant on technology
Productivity
Defined as unit of output per worker our per hour work; productivity = total output/total input
An award
A legal document that sets out the terms and conditions of employment for a specific industry or job. Define minimum wage rates and conditions of employment including overtime, penalty rates, and allowances
Benefits of labour productivity: higher wages
More productive workers are more valuable to a firm. Unit labour costs (ULCs), measure the labour costs of producing one more unit, decreases as productivity increases. Firms profit increases and can be shared.
Benefits of labour productivity: lower prices
Businesses can reduce prices for consumers without reducing profits or wages. Makes more competitive.
Benefits of labour productivity: higher profits
It costs businesses less to produce a given level of output. Profits can be distributed to owners, shareholders, or reinvested into the firm.
Benefits of labour productivity: stronger economic growth
Labour and capital inputs tend to be subject to diminishing marginal returns. Productivity growth thus drives higher living standards long-term.
Labour Supply
About the size, composition, and skills of the available workforce. It’s represented by the ‘labour force’.
Human capital
Refers to the knowledge, skills, and health that people invest in and accumulate throughout their lives, enabling them to realise their potential as productive members of society.
Factors that determine total supply of labour
Pay levels, working conditions offered, education, skills and experience requirements, mobility of labour, size and growth of the population, proportion of the population of working age, the number of hours worked (full time to part time workers proportion), division of work-paid employment and unpaid domestic work, health of the population, government policy to encourage participation in labour market, the stage of the economic cycle
Occupational mobility
The ability of labour to move between different occupations due to wage differentials and employment opportunities.
Geographical mobility
The ability of labour to move between different locations in response to wage differentials and employment opportunities
Working age population
The number of people in an economy aged 15 and over.
Labour force
The population aged over 15 years working or actively seeking employment, made up of those who are employed and unemployed.
Full-time employees
Those who usually work 35 hours or more a week (in all jobs).
Part-time employees
Those who work less than 35 hours per week.
Unemployed
Those who are not employed or work less than 1 hour a week and have actively looked for work in past 4 weeks. Available to start work.
Underemployed
Workers who are employed but work less than 35 hours a week who want and are available for more hours of work than what they currently have. There is some labour force measurement.
Hidden unemployment
People who are not part of the labour force but would likely work if they had the opportunity.
Labour force participation rate (LFPR)
LFPR% = Labour force/Population aged 15 or over * 100
Unemployment rate
Unemployment rate % = Unemployed/Labour force * 100
Underemployment rate
Underemployment rate % = no. of underemployed/Labour force * 100
Underutilisation rate
Underutilisation rate % = Unemployment rate + Underemployment rate
Employment
Aggregate demand and supply factors
Demand factors
Affecting full employment (or unemployment) include any factor that can exert pressure on AD or demand for labour in the economy.
Supply factors
Affecting unemployment and includes any factor that can exert pressure on employment levels via changes in the costs of production or AS levels.
Cyclical unemployment
Caused by changes in AD and the business cycle. It occurs to when AD is deficient or there is insufficient AD to promote derived demand for labour.
Factors affecting structural unemployment: entrenched disadvantage
factors that reduce a person’s access to physical and social resources that enable them to participate fully in society.
Factors affecting structural unemployment: economic shifts
Changes in sectors within the economy due to tastes and preferences of consumers, production methods used by business, population demographics leading to change in economic structure, government policy or assistance for certain indistries
Aggregate demand policies
Any policy that affects AD and thus the general level of economic activity (real GDP growth) and cyclical unemployment
Monetary policy
In Australia, includes influencing interest rates to affect AD, employment, and inflation in the economy. Done by the RBA to maintain stability of the AUD, full employment, and the economic prosperity and welfare of the Australian population.
Discretionary spending
Money spent by consumers on non-essential items
Budgetary (fiscal) policy
Refers to the government’s use of its budget to achieve specified outcomes in the country, includes full employment.
Government objectives
Sustained and inclusive full employment, keep levels as close as possible to current max consistent with low and stable inflation (NAIRU = 4-4.5% unemployment). Inclusive full employment broadens opportunities and lowers barriers to work including discrimination, and reducing structural unemployment.
The three budget outcomes
Budget surplus (planned govt. revenue>planned govt. spending), budget deficit (planned govt. revenue<planned govt. spending), and balanced budget (planned govt. revenue=planned govt. spending)
Full employment
the maximum level of employment that is consistent with low and stable inflation in the medium term; it can change over time as the structure of the economy evolves
