Unemployment Flashcards by Daniel Michelmore

What are the economic costs of unemployment?

Less Production

Slower Economic Growth

Lower Taxation Revenue

Higher Social Welfare Payments

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What are the social costs of unemployment?

Increased Inequality

Poverty

Family Problems

Crime

Social Division

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Define the labour force

That section of the population 15 years of age and above who are either working or actively seeking work

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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

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Define the working-age population

Anyone over the age of 15

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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

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What is Australia’s current labour force and participation rate?

13.4 million, 64.5%

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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

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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

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How is the unemployment rate calculated?

Number of people unemployed/total labour force

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What is Australia’s current unemployment rate?

4.6%, down from 7.4% the year before

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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

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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

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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

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What is Okun’s Law?

In order to reduce unemployment, economic growth must be greater than Productivity Growth + Labour Force Growth

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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