Unemployment: Basics Flashcards
What is the definition of being unemployed?
Not working but actively seeking work
What is the working age population?
The population aged 15 and above
What is the labour force?
The population who are willing and able to work - including both those who have a job and those who don’t
Labour force =
Unemployed + employed
Labour force participation rate =
(Labour force ÷ Working age population) x 100
Unemployment rate =
(Unemployed ÷ Labour force) x 100
List six types of unemployment
1) Cyclical
2) Structural
3) Frictional
4) Seasonal
5) Hidden
6) Long-term
What is cyclical unemployment?
People without a job due to low aggregate demand and derived demand for labour (a downturn in the business cycle)
What is structural unemployment?
People without a job due to a mismatch between their skills and the skills needed for the jobs that are available
What is frictional unemployment?
People without a job because they are transitioning between one job and another
What is seasonal unemployment?
People without a job due to some jobs only being available at particular times of the year
What is hidden unemployment?
People who are not actively seeking work, but would take a job if it was offered to them
What is long-term unemployment?
People without a job for more than 12 months
What is underemployment?
People who are working but would like to work more hours
List 4 groups that are more likely to experience unemployment.
1) Young adults
2) Indigenous Australians
3) People in occupations affected by structural change
4) Migrants
What is full employment?
The level of unemployment where there is no cyclical unemployment
The RBA estimates that full employment in Australia is ..%
… between 4-5%
How has unemployment in Australia changed in recent years?
It was above full employment throughout the 2010s, spiked during the pandemic, then fell dramatically to below full employment after the pandemic, and is now slowly increasing
Why did unemployment rise during the pandemic?
Low derived demand for labour due to:
- Lockdowns and low consumption
- Low business investment
- Low service exports
Why didn’t unemployment rise further during the pandemic?
1) Expansionary fiscal and monetary policy supported AD
2) Those on JobKeeper were considered employed
3) Hidden unemployment rose
Why did unemployment fall in 2022?
1) Strong economic growth due to fiscal and monetary policy and high consumption after the end of lockdowns
2) Fewer backpackers and international students competing for retail and farming work
Why is very low unemployment considered a risk to the economy?
Low unemployment means workers can negotiate higher wages, which can drive up cost inflation
What is the NAIRU?
The non-accelerating inflation rate of unemployment
It is the rate of unemployment below which inflation will rapidly rise
What should the government do if unemployment is above the NAIRU?
Use expansionary macroeconomic (fiscal and monetary) policy to reduce cyclical unemployment
What should the government do if unemployment is below the NAIRU?
Use contractionary macro policy (because any expansionary policy would only lead to inflation and would not reduce unemployment).
They can reduce unemployment further by using supply-side policies such as training and job matching services, and labour market decentralisation
List 5 policies the Australian Government uses to reduce unemployment.
1) Fiscal policy
2) Monetary policy
3) Labour market decentralisation
4) Employment programs
5) Education
List 5 economic costs of unemployment
1) Opportunity cost of unemployed people not contributing to GDP
2) Lower living standards for people not earning an income
3) Hysteresis
4) Government welfare costs
5) Lower wage growth
Why does high unemployment lead to low wage growth?
If there are lots of unemployed people competing for jobs, workers do not have the bargaining power to negotiate higher wages
What is hysteresis?
Individuals losing their skills over time due to being unemployed
List two social costs of unemployment
1) Increased inequality
2) Personal issues such as depression
