Chapter 10 Unemployment

Question 1

What is the labour market

Answer 1

refers to the supply and demand of labour. Demand for labour refers to the willingness of people to work/enter the labour force. Supply for labour refers to the willingness of firms to hire labour.

Question 2

What is the labour force

Answer 2

is the term applied to the proportion of people above the age of 15 who are seeking employment or are in paid employment.

Question 3

What is the participation rate

Answer 3

is the term applied to the proportion of people above the age of 15 who are in the labour force. In August 2023, the participation rate was 67%.

Question 4

how does particpation rate fluctuate with the business cycle

Answer 4

during a contraction or trough, employees feel discouraged if they have limited prospects of obtaining employment. This means that they may stop looking for employment, reducing the participation rate.

Question 5

What is unemployment

Answer 5

Unemployment occurs when people who are willing and able to work cannot find paid employment for at least 1 hour a week.

Question 6

How to be classified as unemployed

Answer 6

To be classified as unemployed, an individual in the survey must have worked zero hours in the reference week; have been actively seeking work in the month prior to the survey; and have carried out specific kinds of tasks to suggest they were actively seeking work, such as contacting employment services;

1. Must have worked 0 hours in the reference week
2. Must be actively seeking work in the month prior to the survey
3. Must have carried out specific tasks to suggest they were actively seeking work, such as contacting employment services.

Question 7

What is unemployment rate

Answer 7

Refers to the proportion of the labour force who are willing and able to work, but cannot find employment for at least 1 hour a week. Unemployment peaked during the Global Financial Crisis (2008-2009), COVID-19, and economic downturn of 1990-1991.

Peaked at 7.6% during mid 2020 but recovered to fall below 5% mid 2021. Is now 4.2% as at August 2024.

Question 8

What is underemployed.

Answer 8

Underemployment occurs when people who are working part time are willing to work longer hours. Most prevalent in industries which have a large number of part time workers, including accomodation, food services, retail trade, and arts and recreational services.

Question 9

what is teh underutilisation rate

Answer 9

Underutilisation rate is the underemployment and unemployment rates that represent the labour force. = Unemployment + underemployment

Question 10

participation rate formula

Answer 10

labour force / working age population * 100

Question 11

Unemployment rate formula

Answer 11

unemployed people / labour force * 100

Question 12

What is the underemployment rate formula

Answer 12

number of part time workers seeking longer hours / labour force * 100

Question 13

What is voluntary unemployment

Answer 13

Voluntary Unemployment is regarded when a worker decides to leave a job.

Question 14

What is involuntary unemployment

Answer 14

Involuntary Unemployment occurs when the worker is laid of work (perhaps because there is not enough demand for their services, or for other reasons such as business restructuring).

Question 15

What is frictional unemployment

Answer 15

Frictional unemployment is a type of voluntary unemployment which occurs when workers are transitioning between jobs and have a temporary people of unemployment. This includes school-leavers trying to find their first job; seeking better pay or conditions; people seeking work closer to home. 1-1.5% of the workforce is frictionally unemployed, which can change depending on phase of business cycle.

Question 16

What is cyclical unemployment

Answer 16

Cyclical unemployment is the type of unemployment that moves with the business cycle. Cyclical unemployment increases during contractions in industries for which consumer demand has fallen, and decreases during expansions. During contractions and cyclical downturns, household expenditure decreases, business investments decreases, and business and household confidence decreases. As a result, business profitability is under pressure, and firms may ‘shed’ labour in order to reduce costs and remain viable. Cyclical unemployment is more common in certain industries such as construction, and in sales oriented jobs due to a decrease in disposable income. Is between 3 months to a year in duration.

Question 17

What is structural unemployment

Answer 17

Structural unemployment occurs when there is a mismatch of available and required skills in an economy. For example, car buyers demand for improved fuel economy after fuel prices tripled in the 1970’s, bank customers who were usually required to visit a physical branch can now conduct transactions through a mobile device, etc. Structural unemployment is usually quite long but temporary, as older workers who may have less formal education. Automation is a massive issue for structural unemployment as it means that more jobs are being taken up by robots, leaving the current workers unemployed due to a mismatch in the required and available skills in the economy.

Question 18

What is the natural rate of unemploment

Answer 18

Is the minimum level of unemployment that can be achieved given the current characteristics of the labour market. In Australia in recent times, it is 4.5% - 5.5%.

Question 19

What are the effects of unemployment

Answer 19

GDP gap on the production possibility frontier. The gap represents unemployments costs in terms of labour output and income. Increase in government expenditure through welfare payments. Low consumer expenditure.

Question 20

What is the relationship between unemployment and inflation

Answer 20

As economic activity increases the unemployment rate will fall. Excess demand in the labour market will lead to increasing wages as employers compete for workers. Higher wages increase production costs and this si normally passed onto consumers as higher prices, thus leading to arise in the rate of inflation. This is reflected through the Philips curve and is an inverse relationship