Unemployment: Basics

Question 1

What is the definition of being unemployed?

Answer 1

Not working but actively seeking work

Question 2

What is the working age population?

Answer 2

The population aged 15 and above

Question 3

What is the labour force?

Answer 3

The population who are willing and able to work - including both those who have a job and those who don’t

Question 4

Labour force =

Answer 4

Unemployed + employed

Question 5

Labour force participation rate =

Answer 5

(Labour force ÷ Working age population) x 100

Question 6

Unemployment rate =

Answer 6

(Unemployed ÷ Labour force) x 100

Question 7

List six types of unemployment

Answer 7

1) Cyclical
2) Structural
3) Frictional
4) Seasonal
5) Hidden
6) Long-term

Question 8

What is cyclical unemployment?

Answer 8

People without a job due to low aggregate demand and derived demand for labour (a downturn in the business cycle)

Question 9

What is structural unemployment?

Answer 9

People without a job due to a mismatch between their skills and the skills needed for the jobs that are available

Question 10

What is frictional unemployment?

Answer 10

People without a job because they are transitioning between one job and another

Question 11

What is seasonal unemployment?

Answer 11

People without a job due to some jobs only being available at particular times of the year

Question 12

What is hidden unemployment?

Answer 12

People who are not actively seeking work, but would take a job if it was offered to them

Question 13

What is long-term unemployment?

Answer 13

People without a job for more than 12 months

Question 14

What is underemployment?

Answer 14

People who are working but would like to work more hours

Question 15

List 4 groups that are more likely to experience unemployment.

Answer 15

1) Young adults
2) Indigenous Australians
3) People in occupations affected by structural change
4) Migrants

Question 16

What is full employment?

Answer 16

The level of unemployment where there is no cyclical unemployment

Question 17

The RBA estimates that full employment in Australia is ..%

Answer 17

… between 4-5%

Question 18

How has unemployment in Australia changed in recent years?

Answer 18

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

Question 19

Why did unemployment rise during the pandemic?

Answer 19

Low derived demand for labour due to:

• Lockdowns and low consumption
• Low business investment
• Low service exports

Question 20

Why didn’t unemployment rise further during the pandemic?

Answer 20

1) Expansionary fiscal and monetary policy supported AD
2) Those on JobKeeper were considered employed
3) Hidden unemployment rose

Question 21

Why did unemployment fall in 2022?

Answer 21

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

Question 22

Why is very low unemployment considered a risk to the economy?

Answer 22

Low unemployment means workers can negotiate higher wages, which can drive up cost inflation

Question 23

What is the NAIRU?

Answer 23

The non-accelerating inflation rate of unemployment

It is the rate of unemployment below which inflation will rapidly rise

Question 24

What should the government do if unemployment is above the NAIRU?

Answer 24

Use expansionary macroeconomic (fiscal and monetary) policy to reduce cyclical unemployment

Question 25

What should the government do if unemployment is below the NAIRU?

Answer 25

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

Question 26

List 5 policies the Australian Government uses to reduce unemployment.

Answer 26

1) Fiscal policy
2) Monetary policy
3) Labour market decentralisation
4) Employment programs
5) Education

Question 27

List 5 economic costs of unemployment

Answer 27

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

Question 28

Why does high unemployment lead to low wage growth?

Answer 28

If there are lots of unemployed people competing for jobs, workers do not have the bargaining power to negotiate higher wages

Question 29

What is hysteresis?

Answer 29

Individuals losing their skills over time due to being unemployed

Question 30

List two social costs of unemployment

Answer 30

1) Increased inequality
2) Personal issues such as depression