2.3 The Labour Market

Question 1

The labour market

Answer 1

The supply (provided by workers) and demand (determined by firms) for labour

Question 2

Derived demand

Answer 2

The demand for labour and depends on demand for goods and services (aggregate demand). Has a positive relationship with demand for goods and services.

Question 3

Cyclical unemployment

Answer 3

Between 1-12 months. Results from changes in economic activity over the business cycle.

Question 4

Structural unemployment

Answer 4

Lasts 12+ months. Results from a mismatch between the jobs available and those looking for work due to a lack of skills or they live too far.

Question 5

Frictional unemployment

Answer 5

Usually less than 1 month. Results from when people move between jobs in the labour market and out of the work force.

Question 6

Underemployment

Answer 6

When people are employed (often part-time) but would like to work more hours and are available to do so.

Question 7

Seasonal unemployment

Answer 7

Occurs during particular times of year because season patterns affect their jobs. Mainly tourism and agriculture sectors.

Question 8

Hidden unemployment

Answer 8

People aren’t counted as unemployed but would likely work if given the opportunity, as they aren’t actively seeking employment.

Question 9

The natural level of unemployment

Answer 9

The proportion of the workforce that voluntarily chooses to remain unemployed when the labour market is in equilibrium.

Question 10

Non-involuntary unemployment

Answer 10

At full employment everyone who wants a job has one.

Question 11

Rate of voluntary employment

Answer 11

estimated at 4-4.5% at full employment

Question 12

Natural level of unemployment

Answer 12

The government’s macroeconomic goal at full employment. Represented by NAIRU to be at inflation at 4.5%.

Question 13

NAIRU

Answer 13

Non-Accelerating Inflation Rate of Unemployment

Question 14

Factors that can influence the total demand for labour

Answer 14

Level of economic activity, demand for individual firms’ product, employer expectations about the future state of the economy, productivity of labour vs other inputs, the relative cost of labour and capital, government economic policies, the industrial climate/conditions in firms’ industry, a shift toward industries mor reliant on technology

Question 15

Productivity

Answer 15

Defined as unit of output per worker our per hour work; productivity = total output/total input

Question 16

An award

Answer 16

A legal document that sets out the terms and conditions of employment for a specific industry or job. Define minimum wage rates and conditions of employment including overtime, penalty rates, and allowances

Question 17

Benefits of labour productivity: higher wages

Answer 17

More productive workers are more valuable to a firm. Unit labour costs (ULCs), measure the labour costs of producing one more unit, decreases as productivity increases. Firms profit increases and can be shared.

Question 18

Benefits of labour productivity: lower prices

Answer 18

Businesses can reduce prices for consumers without reducing profits or wages. Makes more competitive.

Question 19

Benefits of labour productivity: higher profits

Answer 19

It costs businesses less to produce a given level of output. Profits can be distributed to owners, shareholders, or reinvested into the firm.

Question 20

Benefits of labour productivity: stronger economic growth

Answer 20

Labour and capital inputs tend to be subject to diminishing marginal returns. Productivity growth thus drives higher living standards long-term.

Question 21

Labour Supply

Answer 21

About the size, composition, and skills of the available workforce. It’s represented by the ‘labour force’.

Question 22

Human capital

Answer 22

Refers to the knowledge, skills, and health that people invest in and accumulate throughout their lives, enabling them to realise their potential as productive members of society.

Question 23

Factors that determine total supply of labour

Answer 23

Pay levels, working conditions offered, education, skills and experience requirements, mobility of labour, size and growth of the population, proportion of the population of working age, the number of hours worked (full time to part time workers proportion), division of work-paid employment and unpaid domestic work, health of the population, government policy to encourage participation in labour market, the stage of the economic cycle

Question 24

Occupational mobility

Answer 24

The ability of labour to move between different occupations due to wage differentials and employment opportunities.

Question 25

Geographical mobility

Answer 25

The ability of labour to move between different locations in response to wage differentials and employment opportunities

Question 26

Working age population

Answer 26

The number of people in an economy aged 15 and over.

Question 27

Labour force

Answer 27

The population aged over 15 years working or actively seeking employment, made up of those who are employed and unemployed.

Question 28

Full-time employees

Answer 28

Those who usually work 35 hours or more a week (in all jobs).

Question 29

Part-time employees

Answer 29

Those who work less than 35 hours per week.

Question 30

Unemployed

Answer 30

Those who are not employed or work less than 1 hour a week and have actively looked for work in past 4 weeks. Available to start work.

Question 31

Underemployed

Answer 31

Workers who are employed but work less than 35 hours a week who want and are available for more hours of work than what they currently have. There is some labour force measurement.

Question 32

Hidden unemployment

Answer 32

People who are not part of the labour force but would likely work if they had the opportunity.

Question 33

Labour force participation rate (LFPR)

Answer 33

LFPR% = Labour force/Population aged 15 or over * 100

Question 34

Unemployment rate

Answer 34

Unemployment rate % = Unemployed/Labour force * 100

Question 35

Underemployment rate

Answer 35

Underemployment rate % = no. of underemployed/Labour force * 100

Question 36

Underutilisation rate

Answer 36

Underutilisation rate % = Unemployment rate + Underemployment rate

Question 37

Employment

Answer 37

Aggregate demand and supply factors

Question 38

Demand factors

Answer 38

Affecting full employment (or unemployment) include any factor that can exert pressure on AD or demand for labour in the economy.

Question 39

Supply factors

Answer 39

Affecting unemployment and includes any factor that can exert pressure on employment levels via changes in the costs of production or AS levels.

Question 40

Cyclical unemployment

Answer 40

Caused by changes in AD and the business cycle. It occurs to when AD is deficient or there is insufficient AD to promote derived demand for labour.

Question 41

Factors affecting structural unemployment: entrenched disadvantage

Answer 41

factors that reduce a person's access to physical and social resources that enable them to participate fully in society.

Question 42

Factors affecting structural unemployment: economic shifts

Answer 42

Changes in sectors within the economy due to tastes and preferences of consumers, production methods used by business, population demographics leading to change in economic structure, government policy or assistance for certain indistries

Question 43

Aggregate demand policies

Answer 43

Any policy that affects AD and thus the general level of economic activity (real GDP growth) and cyclical unemployment

Question 44

Monetary policy

Answer 44

In Australia, includes influencing interest rates to affect AD, employment, and inflation in the economy. Done by the RBA to maintain stability of the AUD, full employment, and the economic prosperity and welfare of the Australian population.

Question 45

Discretionary spending

Answer 45

Money spent by consumers on non-essential items

Question 46

Budgetary (fiscal) policy

Answer 46

Refers to the government's use of its budget to achieve specified outcomes in the country, includes full employment.

Question 47

Government objectives

Answer 47

Sustained and inclusive full employment, keep levels as close as possible to current max consistent with low and stable inflation (NAIRU = 4-4.5% unemployment). Inclusive full employment broadens opportunities and lowers barriers to work including discrimination, and reducing structural unemployment.

Question 48

The three budget outcomes

Answer 48

Budget surplus (planned govt. revenue>planned govt. spending), budget deficit (planned govt. revenue

Question 49

Full employment

Answer 49

the maximum level of employment that is consistent with low and stable inflation in the medium term; it can change over time as the structure of the economy evolves