Unemployment

Question 1

Define Unemployment

Answer 1

Refers to when individuals over 15 are actively seeking employment but are unable to find a job - as a result labour resources are not fully utilised and output is less than it could be (below the PPC)

Question 2

The Unemployment rate is measured by:

Answer 2

No. of unemployed people
————————————— * 100
Total Labour Force

Question 3

Why is the unemployment rate important?

Answer 3

Acronym: HIIL

• High UE rate > limited employment opp. in a labour market that has excess labour
• Indicator of the performance of an economy (under-utilised labour etc.)
• Identified areas of social concern (e.g. young people, women, ATSI people etc.)
• Low UE rate > tight labour market, potential scarcity of skilled labour etc.

Question 4

What is the labour force affected by?

Answer 4

Acronym: SLAP

• Size of population
• Level of net migration
• Age distribution of population
• Participation rate of the working-age population

Question 5

Outline the types of unemployment

Answer 5

• Cyclical - caused by contractions in economic activity of AD
• Structural - caused by structural changes in the economy (tech, changes in demand etc.)
• Frictional - people who are temporarily UE as they change/find jobs
• Seasonal - experienced by industries or occupations that are characterised by seasonal work e.g. ski resort
• Hidden - UE people that aren’t included in offical UE stats (e.g. discouraged workers that aren’t actively seeking jobs)
• Underemployment - people who work less full time hours per week but want to work for longer hours
• Hard Core - people who face chronic periods of UE due to a physical, mental, emotional or attitudinal difficulties
• Long term - people UE for more than 12 months (may be due to structural UE)

Question 6

What happens when there is an increase in economic growth after an economy has reached the NAIRU?

Answer 6

When UE is above the NAIRU, an increase in economic growth will create jobs and reduce cyclical UE > however once cyclical UE is gone, additional economic growth will see firms raise wages to compete for existing workers - may also lead to increases in AD without increases in AS
- both these factors will lead to inflation

Question 7

What are the factors causing unemployment?

Answer 7

Acronym: STILL DRCCP

• Structural change
• Technological change (SUE)
• Inadequate training and investment (mismatch > SUE)
• Labour costs
• Labour market inflexibility
• Deficiency in Aggregate demand
• Rising participation rates-
• Contractionary macroeconomic policy
• Constraints on economic growth
• Productivity of labour

Question 8

What are the economic costs of unemployment?

Answer 8

Acronym: CLOLL

• Costs to govt (affects govt revenue and expenditure - decreases income tax revenue - deteriorates budget balance in fiscal year)
• Lower wage growth (may see fall in equilibrium wages - excess supply of labour
• Opportunity cost (loss of Y and output - underutilised resources)
• Lower living standards (UE people rely on welfare payments > don’t contribute to economy)
• Loss of human capital (LT UE people lose their labour market skills/ Structural Tech Change can make skills redundant)

Question 9

What are the social costs of unemployment?

Answer 9

Acronym: IOU

• Increased inequality - results in lower Y and greater reliance on welfare payments
• Other social costs - link b/w UE and crime rates, drug and alcohol dependency etc.
• UE for particular groups (youth, indigenous, age-related, migrants etc.)