unemployment

Question 1

unemployment rate

Answer 1

§The percentage of the labour force that is unemployed.

Question 2

Labour force

Answer 2

The sum of employed and unemployed workers in the economy

Question 3

Discouraged workers:

Answer 3

People who are available for work but have not looked for a job during the previous four weeks because they believe no jobs are available for them

Question 4

The Australian Bureau of Statistics (ABS) labour force survey

To be classified as employed, a person must have worked

Answer 4

only 1 hour or more in the week before the survey.

Question 5

The Australian Bureau of Statistics (ABS) labour force survey

Monthly sample of around 0.33% of the population aged 15 and over.

To be classified as unemployed,

Answer 5

a person must not have worked at all in the week before the survey, must have been actively looking for work in the past 4 weeks, and must be ready to start work immediately.

Question 6

what is the unemployment rate given by

Answer 6

labour force = employed + unemployed

Question 7

employment in australia

Answer 7

Question 8

what is the labour force participation rate given by

Answer 8

Question 9

Problems with measuring the unemployment rate

Answer 9

1. The number of discouraged workers increases during a recession; therefore the official unemployment rate appears lower than it would otherwise be.
2. Under-employed workers—people who work part-time but would like to work more hours.
3. People who claim to be unemployed but are not can lead to the unemployment rate being overstated.

Question 10

Trends in labour force participation

The higher the participation rate,

Answer 10

the more labour is available and the higher the level of potential GDP

Question 11

How long are people usually unemployed?

Answer 11

§Around 50% of unemployed people found a job within 3 months, and 66% within 6 months.

Question 12

Long-term unemployed

Answer 12

§Those in the labour force who have been continuously unemployed for a year or longer.

Question 13

2014, Australia: Long-term unemployed

Answer 13

–2014, Australia: 22.2% of the unemployed were long-term unemployed.

Question 14

§The Australian economy creates and destroys hundreds of thousands of jobs every year.

how come

Answer 14

–New firms begin; existing firms expand.
–Some firms contract; some firms go out of business.

Question 15

§Job creation and destruction is a normal part of an economy and is due to changes in:

Answer 15

–consumer tastes, technological change, and entrepreneurial success and failure.

Question 16

The costs of unemployment

Costs to the economy

Answer 16

§Loss of gross domestic product.
§Loss or deterioration of human capital.
§Retraining costs.

§Costs to the government:
–Unemployment benefit payments –> federal budget.
–The opportunity cost of funds directed towards unemployment benefits.
–Loss of tax revenue—personal income tax, company tax, GST and excise taxes.

Question 17

costs of unemployment to the individual
§Loss of income.
§Loss of skills.
§Retraining costs.
§Loss of self-esteem.
§Social costs: Unemployment may contribute to family break-ups, health problems, mental illness, crime and political unrest.

Question 18

Unemployment rate by age, 2014.

The rate of unemployment is significantly higher among

Answer 18

among 15 – 19 year olds - 18.5% - than for any other group. In most societies, some demographic groups will be more vulnerable to unemployment than others. The graph shows young, unskilled people in Australia fall into this category.

Question 19

what is cyclical unemployment

Answer 19

: Unemployment caused by a business cycle contraction.
–Also known as ‘demand deficient’ unemployment.
§Falling sales lead to cut-backs on production and the sacking of workers.

Question 20

§When the economy begins to recover, the unemployment rate usually continues to rise for some time because:

Answer 20

–discouraged workers re-enter the workforce.
–some firms have excess capacity, and also want to wait to see if the recovery lasts before hiring new workers.

Question 21

Frictional unemployment

Answer 21

§Short-term unemployment arising from the process of matching workers with jobs; workers temporarily transitioning between jobs
–School leavers, college and university graduates looking for their first job.
–People re-entering the workforce after an absence.
–People who have lost or quit their job and are looking for their new job.

Question 22

Seasonal unemployment

Answer 22

Seasonal unemployment

Question 23

Some frictional unemployment is good for the economy because

Answer 23

–it means that workers and employers are taking the time necessary to match worker attributes with job characteristics.
–new workers with skills (graduates) are entering the labour force.

Question 24

Structural unemployment

Answer 24

§Unemployment arising from a persistent mismatch between the skills and characteristics of workers and the requirements of jobs; skills are obsolete
e.g. new technology and changes in consumer tastes may make some workers redundant

Question 25

Full employment

Answer 25

§Economists say that full employment occurs where there is no cyclical unemployment.
§At full employment the ‘normal’ types of unemployment still exist—frictional and structural.

Question 26

Natural rate of unemployment:

Answer 26

§The unemployment rate that exists when the economy is operating at potential GDP.

amount of employment when economy is at full employment. 5%

If current unemployment is 9%, there must be some cyclical unemployment

Question 27

Non-accelerating inflation rate of unemployment (NAIRU):

Answer 27

The level of unemployment below which the rate of inflation will rise.

Question 28

Government policies and the unemployment rate

Answer 28

§Most job search is carried out privately.
Government policies can help to reduce structural unemployment through retraining programs

Question 29

Government policies and the unemployment rate

Job Services Australia:

Answer 29

§A national network of private and community recruitment agencies that find jobs for unemployed people and other job seekers.

Question 30

Social security and other payments to the unemployed

These may have two main effects:

Answer 30

1. Allow more time for job search and therefore improve labour market efficiency.
2. Reduce the opportunity cost of unemployment and therefore lead to longer periods of unemployment.

Question 31

what was was the dominant form of wage determination in the early 1980s

Answer 31

§Compulsory arbitration: Tribunals determined minimum pay rates and working conditions of employees in awards.
–Australian Industrial Relations Commission (AIRC).

Question 32

§in the 1990s and early 2000s.Australia moved from a

Answer 32

highly centralised wage and industrial relations system (most of the 20th century) to a relatively deregulated system

1991: AIRC encouraged enterprise bargaining

Question 33

From 1991 onwards

Answer 33

§Enterprise bargaining: Wages and working conditions negotiations between employers and unions or employers and employees at the workplace level.
–Encouraged by the AIRC from 1991 onwards.
By 2006, about half of all employees in the federal jurisdiction were on an enterprise agreement

Question 34

Labour market regulation and deregulation

2006:

Answer 34

§Further deregulation through the Workplace Relations Amendment (WorkChoices) Act 2006.
§Some re-regulation occurred post-2007 with the change in federal government. WorkChoices legislation abolished.

Question 35

Advantages of deregulation:

Answer 35

§Flexible work arrangements may reduce frictional and structural unemployment.
§Improved performance can be rewarded with higher wages.

Question 36

Disadvantages of deregulation:

Answer 36

§Individual work contracts may reduce individual bargaining power between workers and employers.
§Increased labour market flexibility may cause a decline in the position of low-paid workers.

Question 37

Minimum wages

Answer 37

§The majority of workers in Australia are ‘covered’ by minimum wage laws.
–Most workers earn wages that are much higher than the minimum wage.
Minimum wage laws increase the wages of the lowest paid

Question 38

Economists argue over the effect minimum wages may have on employment

Answer 38

–Some argue that they have little or no effect on employment.
–Others argue that minimum wages reduce employment among the low paid, as more people would have been employed if wages were lower.

Question 39

Trade unions are

Answer 39

organisations of workers that bargain with employers for higher wages and better working conditions for their members.

Question 40

trade unions trend

Answer 40

–In earlier times, many Australian workers belonged to unions.
–In 2014, only about 18% of the Australian workforce belonged to unions.

Question 41

Unions may improve

Answer 41

working conditions and pay for their members. In doing so, they also increase employer costs, which may reduce employment

Question 42

Efficiency wage:

Answer 42

§: A higher-than-market wage paid by a firm to increase worker productivity.
–May reduce the need for worker monitoring.
–May provide motivation for more productive work.
–But, efficiency wages increase the labour supply, so may increase unemployment.

Question 43

Why did Henry Ford pay his workers twice as much as other car manufacturers?

Answer 43

Henry Ford claimed that paying a wage twice as high as his competitors was the best cost-cutting move he ever made.