Unemployment Flashcards
What are the economic costs of unemployment?
Less Production
Slower Economic Growth
Lower Taxation Revenue
Higher Social Welfare Payments
What are the social costs of unemployment?
Increased Inequality
Poverty
Family Problems
Crime
Social Division
Define the labour force
That section of the population 15 years of age and above who are either working or actively seeking work
How long must a person work to be classified under the labour force?
Persons must be currently employed for at least 1 hour a week of paid work
Define the working-age population
Anyone over the age of 15
Define the labour force participation rate
The percentage of the working-age population who are in the labour force - that is, either working or actively seeking work
What is Australia’s current labour force and participation rate?
13.4 million, 64.5%
Define unemployment
A situation where individuals want to work but are unable to find a job, and as a result labour resources in an economy are not utilised
What classifies a person as actively seeking employment?
They are regularly checking advertisements
They are willing to respond to advertisements, apply for jobs and attend interviews
They must register with an employment agency linked to Jobs Services Australia
How is the unemployment rate calculated?
Number of people unemployed/total labour force
What is Australia’s current unemployment rate?
4.6%, down from 7.4% the year before
What are some problems with the way that Australia measures unemployment?
Does not take into account underemployment
- Currently at 9.2%
Does not take into account the ‘hidden unemployed’
- Those who have not been able to find work and have left the labour force
What are the recent trends in Australian unemployment?
Unemployment in Australia peaked at 10.7% in 1992-93
- This was due to extensive structural change taking place, and a movement away from manufacturing
There was a gradual downward trend in unemployment from 1993-2008, when it fell to 4%
- This was due to high rates of sustainable economic growth
During the 2010s, unemployment stayed at 5-6%, just below average for advanced economies
The government stimulus packages and JobKeeper/Seeker programs helped to bring unemployment down during COVID-recession
Over recent decades, Australia’s labour market has also seen a sustained trend of faster growth in part-time jobs, reflecting movement towards the gig economy
What are recent trends in underemployment?
Australia has the third-highest level of underemployment in the OECD
30% of Australian workers have part-time jobs of 17 hours per week
In June 2020, underemployment reached 12.6% and there was an average of 19 applicants for every job
What is Okun’s Law?
In order to reduce unemployment, economic growth must be greater than Productivity Growth + Labour Force Growth
How will productivity growth impact unemployment?
In the long run, a higher level of productivity growth will lead to strong economic growth and more jobs, but
In the short term low productivity means that employers will be forced to hire more workers if they wish to increase production
What are they types of unemployment?
cyclical structural frictional seasonal underemployment hidden long term
Describe structural unemployment
Occurs because of structural changes in the economy caused by changes in technology or demand for products
Workers find that the skills previously useful in declining industries do not match those needed in emerging industries
Most of Australia’s persistent, long-term unemployment is attributed to structural unemployment
Describe cyclical unemployment
Occurs because of a downturn in economic activity
Falling consumer demand means fewer employment opportunities
Describe frictional unemployment
Refers to people who are temporarily unemployed as they change jobs
Frictional unemployment is inevitable, but is increased by delays in matching unemployed people to available jobs
Describe seasonal unemployment
Occurs at predictable and regular times throughout the year because of the seasonal nature of some kinds of work
It also accounts for the influx of students finishing school, university and TAFE courses between December and March each year
Official unemployment figures are usually seasonally adjusted to take these fluctuations into account
Describe hidden unemployment
Refers to those people who can be considered unemployed but do not fit the official definition of unemployment and are thus not reflected in unemployment statistics
This includes those individuals who have been discouraged from seeking employment and are no longer actively looking for a job
Define underemployment
Refers to people who work less than full time (35-hours a week) but would like to work longer hours
Describe long-term unemployment
Refers to those people who have been out of work for 12 months or longer
Usually as a result of structural unemployment
The prospects of finding a job for someone who has been out of work for over a year is 44% lower than for someone who has been out for fewer than 4 months
Describe hard-core unemployment
Refers to people who have been out of work for so long that employers consider them unemployable because of their personal circumstances
These circumstances include having a mental or physical disability, drug abuse, or anti-social behaviour
What is the NAIRU?
The non-accelerating inflation rate of unemployment refers to the level of unemployment at which there is no cyclical unemployment - that is, when the economy is at full employment
What is the NAIRU made up of?
Frictional Unemployment
Seasonal Unemployment
Structural Unemployment
Hard-Core Unemployment
Why is the NAIRU said to be ‘the supply constraint on economic growth’?
Once unemployment reaches the NAIRU, an increase in economic growth will only result in higher inflation because employers will be forced to raise wages to compete for workers who are already in employment
Why is a low NAIRU desirable, and how can it be achieved?
A low NAIRU increase the economy’s capacity to grow without increasing inflation
It can be achieved over the long-term through policies that reduce structural, seasonal and frictional unemployment
What are some recent trends in the NAIRU?
The NAIRU peaked at just above 7% in 1995 and has declined gradually since then
With unemployment above the NAIRU in recent years, wage and inflationary pressures have been below long-term averages
RBA research suggested that the NAIRU had declined to around 4.5% by 2019
How does the level of economic growth influence unemployment?
The demand for labour is derived from the demand for goods and services
If there is a downturn in economic activity, this will be reflected in a decreased demand for labour
It is generally felt that unemployment is likely to start rising when growth falls below around 2%
How can macroeconomic policies influence unemployment?
Macroeconomic policy can influence the level of cyclical unemployment in the short to medium term through its influence on the business cycle
An expansionary stance aims to increase economic growth and job creation
Recent RBA interest rate cuts have taken place alongside large-scale fiscal policy measures to support the economy
How can constraints on economic growth influence unemployment?
If there are significant constraints on growth the economy will struggle to create enough jobs to reduce unemployment
During the 1980s, Australia’s inflationary concerns and current account deficit problems were significant constraints on economic growth and therefore contributed to unemployment issues
What are other factors that can cause unemployment?
Rising Participation Rates
Structural Change
Technological Change
Productivity
Inadequate Levels of Training and Investment
Increase in Labour Costs
Inflexibility in the Labour Market
Immobility of the Labour Force
What are the economic impacts of unemployment?
Spare Capacity in the Economy
Lower Living Standards
Decline in Labour Market Skills for the Long-Term Unemployed
Higher Welfare Costs to the Government
Lower Wage Growth
What are the social costs of unemployment?
Increased Inequality
Poverty
Family Tensions & Breakdowns
Increased Levels of Crime
Which groups are most affected by unemployment?
Indigenous Australians
- 49% employed compared to 75% of non-indigenous
Younger People
- Among 15-19 year olds, unemployment is 19.4% - twice the national average
- Underemployment is 42.9%
Rural Areas
People Born Outside of Australia
- Unemployment rate for people who had migrated to Australia over the past five years was higher than the national average
