Chapter 6 - The goal of full employment

Question 1

What is the definition of ​employment?

Answer 1

to be classified as ‘employed’ (by the ABS), one needs to be over 15 years of age and working more than one hour per week in return for some form of measurable remuneration (wages)

Question 2

What is the definition of unemployment?

Answer 2

one need to be over the age of 15, without work or working less than one hour per week, and actively looking for (more) work.

Question 3

What is NAIRU?

Answer 3

Non-Accelerating Inflation Rate of Unemployment

Likely to be a sign of an efficient economy, where some levels of unemployment actually help to drive more efficient outcomes over time, particularly if they are more transitory in nature.

Question 4

What is Structural Unemployment?

Answer 4

Where the skills of the unemployed do not match the skills required for the industry

Question 5

What is seasonal unemployment?

Answer 5

where a person is unemployed because their skills are only demanded during certain times of the year

Question 6

What is ​frictional unemployment?

Answer 6

where a person is unemployed for a period of time while they are moving from one job to another

Question 7

What is hardcore unemployment?

Answer 7

where a person is unemployed due to mental, physical or other characteristic that prevent them from receiving a job offer.

Question 8

What is ​cyclical unemployment?

Answer 8

Occurs when the economy is not operating at its full capacity due to aggregate demand deficiencies.

Such as during 2008-9, when the unemployment rate increased to a high of 5.9% as the economy was in downturn.

It is the main type of unemployment the government seeks to eliminate

Question 9

What is the ​labour force?

Answer 9

All people who are over 15 years of age and are willing and able to work.

Thus, comprises of both those who are employed and those who are unemployed.

Question 10

What is the Participation Rate?

Answer 10

The percentage of the total ‘working age’ population (over 15) who are members of the labour force.

Labour force participation rate tells us what proportion of our potential labour force is actually in​ the labour force.

Question 11

What is the ​unemployment rate?

Answer 11

The percentage of the labour force that is unemployed

Question 12

What is the relationship between participation and unemployment rates?

Answer 12

• An increase in the participation rate is likely to cause a short-term increase in unemployment as new hob seekers are classified as ‘unemployed’.
• Over the long term, higher participation rates exert downward pressure on wages and/or increased labour productivity thus increasing the demand for labour (as its cheaper) and lowering the unemployment rate
• A decrease in the unemployment rate is likely to induce a rise in the participation rate. This is because some job seekers become encouraged about job prospects and enter the labour force.

Question 13

What is ​hidden unemployment?

Answer 13

A group of potential workers who are not classified as members of the labour force despite the fact that they would like to work and would accept a job, as they are not actively seeking work as they don’t believe they will find a job in the labour market.

Question 14

What is underemployment?

Answer 14

Individuals that are classified as employed, but who are at least partly ‘unemployed’ in the sense that they would prefer to be working more hours.

Question 15

What is the underutilisation rate?

Answer 15

Calculated by adding the unemployed to the underemployed and then dividing by the size of the labour force. It represents the proportion of the total labour force that is ‘underutilised’.

Question 16

What are the benefits of pursuing full employment?

Answer 16

1. When people move from unemployed to employed their income increases significantly (to at least minimum wage), thus increasing their material living standards
2. Employment brings with it an improved sense of connection to the community and a higher self-esteem, thus increasing non-material living standards
3. The pursuit of full employment avoid the economic losses such as lost production or output associated with unemployment.
4. Greater employment brings ‘multiplier’ effects to the economy in terms of higher incomes earned and being spent creating additional employment opportunities and income generation.
5. Employment brings greater tax revenue and less welfare
6. Employment brings a ​greater equity in the distribution of income

Question 17

What are the costs of pursuing full employment?

Answer 17

1. Full employment can create an inflationary problem due to excessive growth in AD caused by expansionary policies which will tend to increase prices in those parts of the economy operating at high levels of utilisation.
2. Full employment is associated with very high job vacancy rates and an excess demand for labour. This can depress labour productivity levels (because workers know their is less of a chance of dismissal) and inflate wages as firms enter bidding wars.

Question 18

What are aggregate demand factors influencing full employment?

Answer 18

Demand Factors affecting full employment include any factor that can exert pressure on aggregate demand or demand for labour in the economy.

1. Interest Rates
2. Real Disposable Incomes
3. Taxation Rates
4. Government Assistance and Regulations
5. The exchange rate
6. Overseas Growth Rates
7. Terms of Trade

Question 19

What are aggregate supply factors influencing full employment?

Answer 19

Supply factors affecting full employment include any factor that can exert pressure on employment/unemployment via changes in the cost of production or aggregate supply levels.

1. Interest Rates
2. Taxation Rates
3. Government Assistance and Regulation
4. The Exchange Rate
5. Productivity
6. Labour Costs
7. Industrial Disputation
8. Climatic or Geopolitical Events