The Labour Market 2.2.1A

Question 1

define the labour market

Answer 1

 The labour market is an institution where the conditions of demand for labour by firms and the supply for labour by households, interact to determine wages (i.e. the price of labour) and conditions of employment

Question 2

examples of non price facts that affect the demand for labour

Answer 2

1. Changes in the level of consumer demand for goods and services
2. The number of businesses wanting to buy labour (hire more labour)
3. The efficiency of labour
4. The level of business profitability
5. Whether there are substitutes for labour available
6. Government Policy

Question 3

examples of non - price factors affecting the supply of labour

Answer 3

1. Demographics, population structures, and the participation rate of the population in the labour force
2. Net immigration rates
3. People’s work life balance
4. Government policy
5. Restrictions on entry into occupations
6. Trade unions

Question 4

what is the ideal lowest rate of unemployment

Answer 4

between 4.0 to 4.5

Question 5

when do stronger labour conditions occur

Answer 5

develop when the demand for labour rises relative to the supply, perhaps because of rising economic activity or the onset of a boom. In this situation, wages increase faster, people work longer hours and labour shortages can appear.

Question 6

when do weaker labour conditions occur

Answer 6

develop when the demand for labour falls relative to the supply. It is often caused by a slowdown in economic activity or recession. In this situation, wages rise more slowly or fall, and people work fewer hours or become unemployed.

Question 7

what does an ideal labour market want to avoid

Answer 7

should neither be too strong causing labour shortages and perhaps wage-price inflation, nor should they be too weak where unemployment and lower incomes depress living standards.

Question 8

the goal of full employment, this is defined as the lowest rate of unemployment being …

Answer 8

4.0 to 4.5 which doesn’t cause inflation rate to increase

Question 9

how does a strong labour market affect material living standards

Answer 9

When the labour market is strong, like in 2021–22, indicators such as employment, labour force participation, and hours worked rise, while unemployment falls. This typically leads to higher average incomes, increased consumption, and improved living standards.

Question 10

how does a weak labour market affect material living standards

Answer 10

a weak labour market, as seen during COVID-19 in 2020, is marked by higher unemployment and reduced hours worked, leading to lower consumption and a decline in living standards

Question 11

how changes in the labour market effect non-material living standards

Answer 11

When there are positive changes in Australia’s labour market that reduce unemployment, grow job opportunities and more work to improve non material living standards

Question 12

how does the rate of the natural increase in population (economic factor) influence the labour market

Answer 12

After children have reached the working age, this expands the labour forces as there is more available labour.

Question 13

how does the rate of net migration (economic factor) influence the labour market

Answer 13

Migrants are generally younger, or bring a skilled quality to the labour force, significantly growing the nations productive capacity.

Question 14

what are two factors that have influenced changes in the employment and unemployment rate

Answer 14

cyclical unemployment; unemployment is caused by generally weaker aggregate demand factors that slow spending on Australian-made goods and services.

natural unemployment; is caused by changing aggregate supply conditions that alter the way goods and services are produced and/or whether firms expand or close down.

Question 15

what are causes of cyclical unemployment

Answer 15

might include consumer confidence, business confidence, disposable income, government spending, interest rates and overseas economic activity (all affecting aggregate demand)

Question 16

what are causes of natural unemployment

Answer 16

structural unemployment - businesses alter they way they operate and may produce goods or services using new tech.

fictional unemployment - people are unemployed between finishing one job and starting another.

seasonal unemployment - unemployment that exists as a result of termination of a job as the same time each year due to the regular change in seasons.

hardcore unemployment - unemployment that exists as a result of personal appearance, criminal record or a physical disability.

Question 17

factors that affect the participation rate of the labour force.

Answer 17

the rise in the female participation rate

the increase in the proportion of the labour force choosing to work longer.

glowing our population through the arrival of many immigrants has helped to slow the ageing of Australia’s population.

Question 18

participation rate

Answer 18

the promotion of those aged 15 and over who are in the labour force

Question 19

factors that have slowed the wage growth

Answer 19

weaker labour productivity growth

high level of immigration (growing the supply of labour)

higher levels of unemployment (supply > demand)

declining union membership.

Question 20

factors that have led to shortages

Answer 20

Australia’s ageing population - skills being lost due to retirement

the desire for a work - life balance

the COVID 19 pandemic

Question 21

stakeholder

Answer 21

is an individual or group that has an interest in any decision or activity that occurs in the economy

Question 22

households perspective

Answer 22

certainly need a job and good pay to allow you to enjoy reasonable living standards. However, you also want cheap goods and services. There is a real challenge here to have high pay, lots of jobs and cheap prices.

Question 23

business perspective

Answer 23

keen to see wage growth remain slow, and hence push for the government to accelerate immigration, increase the retirement age, invest more in education and skills training, and provide tax and other financial incentives to invest in new labour-saving technology

Question 24

perspective of governments

Answer 24

want to use various economic policies that help to grow job opportunities and achieve the goal of full employment

Question 25

how would households view an increase in wages

Answer 25

Households are likely to view an increase in wages positively, as it boosts their disposable income. This increase allows them to spend more within the economy and gain greater access to goods and services, thereby enhancing their material living standard

Question 26

how would governments view an increase in wages

Answer 26

The government may view an increase in wages negatively, as the resulting rise in disposable income for households can lead to higher spending on goods and services. This increased spending may drive inflation, raising the cost of living and potentially reducing non-material living standards, as households could struggle to afford essential goods.

Question 27

how would businesses view an increase in wages

Answer 27

Businesses may have a negative view of wage increases, as they would be required to raise employee compensation, leading to higher overall expenses. This increase in costs can limit their profit margins, making it more challenging for businesses to maintain profitability.

Question 28

what is the role of aggregate demand policies

Answer 28

policies to limit cyclical unemployment and avoid labour shortages by regulating the strength of AD and economic activity

Question 29

what is the role of aggregate supply policies

Answer 29

to lower structural unemployment and grow the size of the labour force, making AS conditions more favourable for business expansion

Question 30

what do aggregate demand policies include

Answer 30

include budgetary and monetary measures
designed to regulate spending or AD, GDP
employment, unemployment and labour
shortages.

Question 31

define budgetary policy

Answer 31

Budgetary policy relates to the projected changes in the level and composition of federal government revenues (receipts or incoming money) and expenses (outlays or outgoing money) for the year ahead.

Question 32

budget revenues

Answer 32

come from direct taxes like those on personal income and company profits, and from indirect taxes such as excise or tariffs, along with non-tax revenue.

Question 33

budget expenses

Answer 33

arise from various types of government outlays on public goods such as defence, health and education, involving both government consumption spending and government investment spending, as well as transfer payments including welfare.

Question 34

what is the objectives of budgetary policies

Answer 34

goal of budgetary policy is to improve the welfare or living standards of all Australians, or to achieve the most efficient allocation of the nation’s resources.

-“The Government’s fiscal policy is to be directed at maintaining the on-going economic prosperity and welfare of the people of Australia and is therefore to be set in a sustainable medium-term framework”

Question 35

Expansionary Budgetary policy

Answer 35

Involves changes in the level of government tax receipts and government spending.
Aims to stimulate AD and lower cyclical unemployment during slowdowns.

Question 36

examples of expansionary budgetary policies

Answer 36

tax cuts, transfer payments, rebates and increased government spending on projects such as infrastructure improvements.

Question 37

explain jobkeeper as an example of expansionary budgetary policy

Answer 37

was implanted during a recession, when cyclical unemployment was rising.Measures included reductions in taxes and rises in government outlays including the $90 billion for the JobKeeper wage subsidy scheme.
This allowed struggling businesses affected by COVID-19 lockdowns to keep on paying wages to their staff rather than dismissing them.

Question 38

when are contractionary budgetary policies used by economic agents?

Answer 38

When the economy expands too quickly and experiences a boom,labour shortagescan appear as the unemployment rate falls below 4.0 per cent(e.g. May 2022).

Question 39

examples of contractionary budgetary policies

Answer 39

raising interest rates, increasing bank reserve requirements, and selling government securities.