Unit 2 AOS2 part a Flashcards
Definition of the Labour Market
A labour market is the place where workers and employees interact with each other.
Operation of labour market:
The household sector who are able and willing to work, supply labour (S) to the business sector wanting to buy or demand labour (D) so they can produce goods and services.
Together, sellers and buyers negotiate wages (W) or the equilibrium price.
Buyers and sellers - labour market
There are buyers and sellers and they interact to determine a price. In this case, the “good” being bought and sold is labor and the price for that good is a wage.
List + define measures of the labour market
Unemployment rate -the percentage of people in the labour force who are unemployed.
Participation rate - the percentage of people in the working-age population that are in the labour force.
Underutilisation rate - the extent to which the available supply of labour is not working at its capacity. This is equal to the unemployment rate plus the underemployment rate.
Job vacancies - number of positions advertised by employers that are unfilled.
IDEAL Labour Market Conditions
Ideally, labour market conditions should neither be too strong causing labour shortages and perhaps wage-price inflation, nor should they be too weak where unemployment and lower incomes depress living standards.
STRONGER Labour Market Conditions
Cause:
Develop when the demand for labour rises relative to the supply.
These conditions might be caused by
rising economic activity or the onset of a boom.
Effects:
Wages tend to increase faster, people work longer hours
When conditions are too strong, labour shortages appear and wage-price inflation occurs.
WEAKER Labour Market Conditions indicators and when it develops
Develop when the demand for labour falls relative to the supply.
Indicators:
Economic slowdown or recession. Wages rise more slowly (or even fall) People work fewer hours or become unemployed.
When conditions are too weak, unemployment rises, and lower incomes depress living standards
Wage price inflation
Wage-price inflation is a situation where rising wages lead to higher production costs for businesses, which in turn causes them to increase the prices of goods and services. As prices go up, workers may demand even higher wages to keep up with the cost of living, creating a cycle of increasing wages and prices.
Effect of labour market conditions on: Income distribution
The number of hours worked per week, along with unemployment and participation rates, greatly affect the level of a person’s income.
Weaker labour market conditions decrease income distribution
Effect of labour market conditions on: Productive capacity
The quantity and quality of labour resources available limits the country’s productive capacity and its potential GDP and income.
Weaker labour market limits productive capacity
Effect of labour market conditions on: Non-material living standards
A strong labour market will improve non material living standards as households have the security of employment and income
What causes Cyclical Unemployment
Cyclical employment is caused by contractions in an economy and a decrease in AD
Factors that affect cyclical unemployment
Consumer confidence
Economic growth in trading partner- When growth in trading partners is low, they will demand fewer Australian exports.
Interest rates
Exchange rates - When the exchange rate appreciates, Australian exports become more expensive for other countries to import, and increases demand for imports to replace Australian made products with cheaper foreign alternatives.This decreases AD and increases CU.
Natural unemployment
There is always a level of unemployment.
This is usually due to:
1.Structural Unemployment:
Exists when the skills possessed by some members of the workforce do not match the skills required by businesses.
2.Seasonal Unemployment:
Occurs for workers whose skills are not in demand at certain times of the year (Fruit pickers)
3.Frictional Unemployment:
Caused when a person has left one job and is yet to find a new job.
4.Hard-core Unemployment:
Caused by individual characteristics that make it difficult to gain employment. (Criminal or drugs)
NAIRU acronym and definition
Non-Accelerating Inflation Rate of Unemployment
The NAIRU is the lowest unemployment rate that can be sustained without sparking excessive inflation
