Online Tutoring on Unemployment in Australia

INTRODUCTION

Unemployment is the important highlighted issue that is being discussed and addressed in the study of macroeconomics. A person is labelled as unemployed when he or she is willing and able to work, yet is unable to find job regardless of searching for it actively. It eliminates the people who are voluntarily idle because of being inactive for searching jobs (Edge, 2013). The job seekers who get tired of searching for job or believe that they won’t be able to find one are termed as discouraged workers (Kent, 2014).

This report is prepared to discuss the labor force, the employed and the unemployed in Australia. The unemployment rate Australia from 1980 to 2014 are also discussed in the report whereas the data has been sourced from Australian Bureau of Statistics. Meanwhile, the report is also based on distinction between frictional, structural and cyclical unemployment along with the economic and social costs associated with the unemployment.

 

UNEMPLOYMENT IN AUSTRALIA

In order to debate on current unemployment rate in Australia, it is important to understand the concept of labor force. Labor force is defined as the persons that are 16 year of age and older who are either working or actively searching for work (Australian Bureau of Statistics, 2003). If the person has the ability to work but isn’t working or has no interest in seeking for work, then that person is not included in the labor force. So the main factor that determines whether a person is or isn’t in the labor force is mainly the activity directed towards employment instead of the capability of holding a job. According to Australian Bureau of Statistics an unemployed person is the person who is 15 years of age and over while unemployed during the reference week and had been actively looking for full-time or part time work at any time in the four weeks and/or was waiting to start a new job within four weeks from the end of reference week (Australian Bureau of Statistics, 2013).

In order to obtain a snapshot of the unemployment and labor supply in Australia at a particular point in time, ABS uses the definition of unemployed described above. Australian unemployment trend rate has decreased from 6.2 percent to 6.1 percent over the current year (Australian Bureau of Statistics, 2013). The recent statistics show that the unemployment rate has fallen in the recent period but still remained at higher levels as compared to 1960s. The figure below shows that between 1966 and 2000, the number of unemployed Australians have increased from 90,300 to 596,000. In the early 1980s, there was a sharp rise in the unemployment rate while during 1989 it fell to 6%. Another rise in unemployment rate was recognized during 1990s in which it peaked at 11% in 1993 (Australian Bureau of Statistics, 2013).

With each economic downturn in 1972, 1978, 1983 and 1993, the unemployment rate became successively higher. A closer look of the unemployment rates in past 20 years reflect the downward trend as the rate fell to 6.1% in 2014 from 11% in 1993 (Australian Bureau of Statistics, 2013). The unemployment rate has been rising gradually over the past few years to a level that is comparitvely higher in the recent few years. During 2003 the unemployment rate was 5.99% after which it fell to 5.65% in 2013 but rose to 6% again in 2014. The rise in the unemployment rate in Australia was due to the slowdown in the economy growth rates due to global recession. This pushed up the ever low unemployment rate of 4.242% in 2008 to 6% again in 2014. The growth in the jobs is related to the economic activity in the economy. Where as the downturn in US economy and global recession during 2007, 2008 and 2009 left long lasting impression on the economic growth that helped in projecting unemployment rates in Australia (Edge, 2013).

 

MAJOR TYPES OF UNEMPLOYMENT

There is no single factor of unemployment, instead there are mainly three sources of unemployment that prevails in ever economy. The three unemployment rates are discussed below.

 

CYCLICAL UNEMPLOYMENT

Cyclical unemployment is defined as the involuntary unemployment that is derived from downswing in the business cycle or due to economic recession (Welch & Welch, 2009). The reason is that the markets do not generally produce the goods and services at a constant rate over a long period of time instead there are upswings and downswings in the business cycles in every economy. During the downswing, the economy faces low demand for goods and services due to which the producers lay off the workers to manage the losses being faced during recession. This involuntary laid off is termed as cyclical unemployment. It is of serious concern because it remains until and unless the economy revives out of recession.

FRICTIONAL UNEMPLOYMENT

Frictional unemployment generally occurs when the people voluntarily stay out of work for a short period of time while searching for jobs (Welch & Welch, 2009). While searching for job, the job seekers remain unemployed during their search which is termed as frictional unemployment. In large economies, frictional unemployment does occur as people are always shifting or looking for new jobs voluntarily and remain unemployed during their search. Even at full-employment, frictional unemployment always exist in every economy which means that full-employment doesn’t indicate 100% working labor force in an economy.

 

STRUCTURAL UNEMPLOYMENT

Structural unemployment results when the worker’s job is no longer required for production of goods or services in the economy (Welch & Welch, 2009). It is an involuntary type of unemployment in which the worker loses a job because the good or service that the worker produced may no longer be demanded by the economy e.g. typewriters and post-officers.

 

ECONOMIC AND SOCIAL COST OF UNEMPLOYMENT

The social costs of unemployment is dependent upon the social opportunity cost of the unemployed persons’ time. According to Naylor and Senior (2000), unemployment gives rise to social ills like crime, delinquency, divorce, educational problems, poor race relations and lower productivity. Banks and Phillip (1987) stated that unemployment effects the psychological health of people and have impact on suicide rates. The report also suggested that there is a positive association between mental health and employment rates of young workers. The social and economic costs of unemployment includes permanent losses of output of goods and services while the unemployed face financial insecurity which results in indebtedness and poverty. Criminal activities stay high along with suicide rates, ill health, family disruptions, malnutrition, poor parental care, drug addiction, ethnic antagonism and racial problems (Burgess & Ruyter, 2000). It also destabilizes the business expectations due to low demand and poor private investment. It also leads to technological stagnation as unemployment will stimulate less innovation.

 

POLICIES TO COMBAT UNEMPLOYMENT

For reducing unemployment there are two main strategies i.e. demand side policies and supply side policies. The demand side policies include fiscal policy and monetary policy. By having expansionary fiscal policy, the government cuts down taxes and increase government spending which lowers increases disposable income and helps increasing the aggregate demand due to which demand for workers increases (Lindbeck & Snower, 2001). The figure below shows the shift from AD₁ to AD₂ in response to expansionary fiscal policy.

By implementing expansioanry monetary policy, the central bank increases money supply in the economy which results into increased aggregate demand and reduce demand deficient unemployment. The supply side policies include education and training, reducing power of trade unions, improving labor market flexibility, having strict benefit requirements and improving geographical mobility (Lindbeck & Snower, 2001).

 

CONCLUSION

Unemployment has remained a scourge in countries at all levels of economic development including Australia as it attracts poverty and exclusion from normal course of life.  In order to reduce unemployment in longer term, the demand and supply-side polices of Government needs to work in collaboration. As simply boosting up the demand of goods through expansionary fiscal and monetary policy, the unemployment rate cannot be controlled if the root cause of unemployment was structural.

 

References

ABS. (2015). Australian Unemployment Rate. ABS. Retrieved December 9, 2015, from http://www.tradingeconomics.com/australia/unemployment-rate

Australian Bureau of Statistics. (2003). Feature Article – Unemployment and participation rates in Australia: a cohort analysis. ABS. Retrieved December 9, 2015, from http://www.abs.gov.au/AUSSTATS/abs@.nsf/Previousproducts/6105.0Feature%20Article10Jul%202003?opendocument&tabname=Summary&prodno=6105.0&issue=Jul%202003&num=&view=

Australian Bureau of Statistics. (2013). Labour Statistics: Concepts, Sources and Methods. Canberra: ABS. Retrieved December 9, 2015, from http://www.abs.gov.au/ausstats/abs@.nsf/Lookup/6102.0.55.001Chapter162013

Banks, M. H., & Phillips, U. (1987). Youth unemployment in the 1980 s: A psychological analysis. London: Croom Helm. Retrieved December 9, 2015, from https://www2.bc.edu/~murphyro/EC204/Supps/SuppCh7.pdf

Burgess, J., & Ruyter, A. D. (2000). Declining job quality in Australia: Another hidden cost of unemployment. The Economic and Labour Relations Review, 11(2), 246-269.

Edge, K. (2013). Economic issues in the Australian economy: Unemployment. NSW: Charles Stut University. Retrieved December 9, 2015, from http://www.hsc.csu.edu.au/economics/issues/unemployment/Topic3Tutorial1Unemployment2.html

Kent, C. (2014). The Business Cycle in Australia. Reserve Bank of Australia. Retrieved December 9, 2015, from http://www.rba.gov.au/speeches/2014/sp-ag-131114.html

Lindbeck, A., & Snower, D. (2001). Demand-and supply-side policies and unemployment: policy implications of the insider-outsider approach. The Scandinavian Journal of Economics, 279-305. Retrieved December 9, 2015, from http://core.ac.uk/download/pdf/6750437.pdf

Naylor, J., & Senior, B. (2000). Incompressible unemployment: causes, consequences and alternatives. Gower Pub Co.

Welch, P. J., & Welch, G. F. (2009). Economics: Theory and practice. John Wiley & Sons.