Unemployment

Question 1

Labour force calculation

Answer 1

Total Australian Labour Force = Employed (full time + part time) + Unemployed

Question 2

Participation rate calculation

Answer 2

Work Force/ Labour force x 100/1

Question 3

Unemployment rate calculation

Answer 3

Total Number Unemployed/ labour force x 100 /1

Question 4

1990-91 recession statistics

Answer 4

• After the 1990-91 recession, the unemployment rate rose to 11.2% in 1992 (historic high) and then fell slowly to a historic low of 4.2% in 2007-08 after 17 years of consecutive economic growth.
• In the 1990-91 recession the unemployment rate rose from under 6 percent to just above 11 p er cent, taking 11 years to get and stay below 6 per cent again.

Question 5

2008-9 GFC statistics

Answer 5

• In 2008-09 the impact of the GFC led to the unemployment rate rising to 5.8% but a recovery in 2010-11 helped to lower unemployment to 5.2% by 2012.

Question 6

Covid-19 statistics

Answer 6

• Australia’s unemployment rate rose from 5.2 per cent in March 2020 to 7.5 per cent in July 2020 and by April 2021 it was back down to 5.5 per cent
• Government stimulus went to 32 per cent of the population, according to the ABS household survey

As 3.5 million individuals were receiving the job keeper payment over the period from April to July 2020, t job keeper reduced total employment losses by at least 700 000

Question 7

Cyclical u/e

Answer 7

This is a short-term type of unemployment that is caused by a deficiency in AD – i.e. a downswing in the business cycle or economic activity.

Question 8

Structural u/e

Answer 8

This is a long-term type of unemployment that results from a mismatch between the labour skills of employees (the supply of labour) and the job vacancies offered by employees (the demand for labour).

It is long-term because it takes a long period of time for workers to obtain new skills and education to transition to new industries.

Question 9

Frictional u/e

Answer 9

When people are moving between jobs. Short term unemployment when people are transitioning.

Question 10

Seasonal u/e

Answer 10

This occurs when specific industries or occupations are characterised by seasonal work – i.e. demand fluctuates at certain times of the year, or workers are only required at certain times of the year.

Question 11

Underemployment

Answer 11

This refers to people who ARE currently working, but wish to work additional hours – generally, they are engaged in part-time OR casual work, but seek to work full time.

Question 12

Hidden u/e

Answer 12

They have given up looking for work OR receive income support from another party (e.g. spouse or parent).

Not considered in the labour force (participation rate)

↑ hidden unemployment recently due to COVID-19, reflected through a drop in the participation rate to 63.5%

Question 13

long term u/e

Answer 13

This occurs when persons are unemployed for over 52 weeks. This may be due to a lack of skills, training or motivation to secure employment.

Question 14

Hardcore unemployment

Answer 14

Refers to people in the labour force who have prolonged periods of unemployment due to personal difficulties (e.g. physical disabilities, mental illness, criminal record, drug or alcohol abuse etc.)

Question 15

NAIRU

Answer 15

The Non-Accelerating Inflation Rate of Unemployment (NAIRU) is a level of unemployment that will not cause the inflation rate to increase, thus achieving price stability.

Question 16

The Phillips Curve

Answer 16

The Phillips Curve is a theoretical economic model that shows the inverse relationship between unemployment and inflation.

Question 17

Main groups affected by unemployment

Answer 17

The main groups in Australia that are more vulnerable to unemployment are the youth, the elderly, Aborigines and Torres Strait Islanders and people with low levels of education attainment.

Question 18

Economic effect of unemployment

Opportunity cost

Answer 18

Unemployment means the economy’s resources are not being used to their full capacity- the economy is thus operating below its production possibility frontier. Therefore, total output is below what it could potentially. Be, since unemployed people are not contributing to the production process. Lower total output also means lower households’ incomes and expenditure, which may lower sales and profits. Higher unemployment levels may therefore lead to reduced business investment, production and economic growth.

Question 19

Economic effect of unemployment

Lower living standards

Answer 19

Those who are out of work will have lower incomes (relying on welfare payments) and therefore lower living standards. In addition, those who are in employment will need to contribute higher taxes to cover the cost of income support who are in employed. With high rates of unemployment, the production of consumer goods and capital goods is lower, resulting in lower living standards.

Question 20

Economic effect of unemployment

Decline in labour market skills for the long-term unemployed.

Answer 20

Unemployment leads to a loss of skills among existing workers who find themselves without work for extended periods of time. Persistently high unemployment will mean that those who are unemployed will lose their labour market skills, confidence and experience and will become less employable or even unemployable. In this way cyclical or short-term unemployment can turn into long-term structural employment, a process known as hysteresis.

Question 21

Economic effect of unemployment

Costs to governments

Answer 21

High levels of unemployment can have a significant influence on the government’s revenue and expenditure (and therefore on the federal budget). Falling incomes associated with unemployment will generate less tax revenue and at the same time, the government will be burdened with increased transfer payments (unemployment benefits) to the unemployed, as well as the cost of training and labour market programs. This decrease in revenue and increase in expenditure will cause a deterioration in the government’s budget balance.

Question 22

Economic effect of unemployment

Lower wage growth

Answer 22

High levels of unemployment mean that there is an excess of labour supply in the economy, which should lead to a fall in the equilibrium level of wages. Higher unemployment is more likely to lead to slower wage growth over time rather than actual reductions in wages. Lower wage growth has been particularly evident in recent years with wage growth remaining below 3 per cent since 2013, although several factors in addition to unemployment help explain the shift towards lower wage increases.

Question 23

Social costs of unemployment

Increased inequality

Answer 23

Unemployment tends to occur more frequently among lower-income earners in the economy, such as the young and unskilled. Because unemployment. Means a loss of income for these people, they become relatively worse off compared to higher-income earners, contributing to poverty and overall inequality in income distribution.

One in eight Australian children grow up in a household where nobody is working – a “jobless family.” Recent research by Smith Family has highlighted the “intergenerational” dimension of inequality and poverty, where disadvantage is passed from one generation to the next, often described as the “poverty trap.”

Question 24

Other social costs

Answer 24

• severe financial hardship and poverty
• increased levels of debt
• homelessness and housing problems
• family tensions and breakdowns
• loss of work skills
• increased social isolation.
• Increased levels of crime
• Erosion of confidence and self-esteem
• Poor health, mental health conditions and a higher risk of suicide.

These social problems have an economic cost for the community since more resources must be directed towards dealing with them. For example, more public funds must be spent on health, welfare series, social workers, the police service and correctional center rather than being used to satisfy other community wants.