Unemployment

• •Labour market refers to supply of and demand for labour

  •Unemployment rate target – 4%
• •Labour force – people who are either working or seeking work

  •Participation rate – proportion of working age population that is in the labour force
• unemployment

  
• •Participation rate has trended upwards

  •Male participation rates have fallen due to higher education retention rates(higher levels of education before entering workforce), changing social attitudes, males are retiring earlier

  •Female participation rates have increased due to changing social attitudes. Part time and casual work has been a big contributor
• •Unemployment – occurs when people who are willing and able to work cannot find a job
• •Unemployment rate – proportion of the labour force who are willing and able to work but have not been employed in paid work for at least one hour in the survey week
• •Full employment – means that people who want a job can find one without having to search for too long
• •NAIRU – The NAIRU is the lowest unemployment rate that can be sustained without causing wages growth and inflation to rise.
• •Underemployment – part-time workers who indicate that they would prefer to work more hours
• •Labour force – people who are either working or seeking to work
• •The headline unemployment rate has understated the true rate by a fair margin

  •According to ABS figure, more than one million (part-time) workers would have preferred longer working hours
• •Underemployment or disguised unemployment occurs when workers who would like to be working full-time can only find part-time work

  •This is an indicator of spare capacity in the labour force

  •Long term upward in underemployment – reflects flexible nature of labour market and the likelihood that business react to changing conditions by adjusting employee hours
• •The unemployment rate plus the underemployment rate represents the underutilisation rate

  •Youth unemployment is consistently higher than adult unemployment
• •Participation rate = (labour force / working age population) x 100
• •Unemployment rate = (number of people who are unemployed / labour force) x 100
• •Underemployment rate = (number of part-time workers seeking more work / labour force) x 100
• •Underutilisation rate = unemployment rate + underemployment rate
• •Voluntary unemployment - unemployment is regarded as voluntary if a worker decides to leave a job to search for another position
• •Involuntary unemployment  - occurs when a worker is laid off from their place of work (when there is not enough demand for their services or other reasons such as business restructuring)
• Causes and types of unemployment:

  • frictional
  • structural
  • cyclical
• Frictional Unemployment

  •Voluntary

  •Occurs when workers are transitioning between jobs and have a temporary period of unemployment

  •Examples includes students seeking their first job, people re-entering the workforce, finding a job in a new city

  •Sometimes called search unemployment as finding a suitable job takes time and involves search costs

  •Short duration – short term form of joblessness when a worker is between jobs

  •Short term costs but brings benefits if the search leads to better outcome for workers and employers
• Frictional Unemployment

  •Depending on the phase of the business cycle, it is likely that between 1 and 1.5% of the workforce is frictionally unemployed

  •During a downturn, people are reluctant to quit their job if they think getting a new job will be difficult

  •Conversely, there could be a lot of job search in a strong economy

  •Job search is a key reason why unemployment never reaches zero
• Cyclical Unemployment


  The demand for labour is derived from the demand for final goods and services
• Cyclical unemployment can be expected to follow


  The ups and downs of the business cycle
• In periods of recession and trough


  Cyclical unemployment will rise
• When the level of consumer and business spending is high


  Cyclical unemployment will fall
• Demand-deficient unemployment


  Another term for cyclical unemployment; it rises when there is insufficient demand to fully employ the country’s resources
• Cyclical Unemployment

  •As shown, there was higher than average unemployment in 1982-83, 1991-92 and 2008-09

  •Each of these periods featured lower spending on consumer durables, reductions in the level of business investment and lower business and consumer confidence

  •As a result, business profitability was low, and many firms had to shed labour in order to reduce costs and remain viable

  
• Cyclical Unemployment

  Unemployment that affects some sectors of the economy more than others
• Building and construction employment tends to soften when growth slows
• Sales-oriented jobs (retail, motor vehicles) also soften when growth slows
• Jobs in hospitality and tourism become harder to find during economic downturns
• Downturn in household disposable income


  Reflects impact on jobs in hospitality and tourism
• Job markets associated with education, health and public service

  • Less impact from cyclical changes
  • Demand depends more on population size than economic activity
• Cyclical unemployment


  Falls in periods of economic expansion
• Medium duration of cyclical unemployment

  3 months to a year
• Structural Unemployment


  Occurs when there is a mismatch of available and required skills in a sector of the economy
• Structure of economy is constantly changing
• COVID-19 saw a shift to work from home
• Historical examples of structural unemployment

  • Assembly line workers replaced by a robot
  • Blacksmith lost job to automobiles
  • Bank teller replaced with an ATM
  • Drivers in mines replaced by remotely controlled trucks