Ch 10: Unemployment

Question 1

What are the 3 categories the ABS groups Aus. households into?

Answer 1

• people who were employed (at least 1 hour of paid work or >15 hours in a family business unpaid)
• people who actively sought work and were willing and able to start work in the survey periods but were unable to find work
• people who were not in the labour force - those who made no effort to find a job i.e. parenting duties at home, retired, chose not to work

Question 2

What is the participation rate?

Answer 2

proportion of the working age population who are either in work or actively seeking work

June 2013: 65.3%

Question 3

How is the total population in Australia divided up?

Answer 3

Question 4

What is unemployment?

Answer 4

when people are willing and able to work but can’t find a job

Question 5

What is the unemployment rate?

Answer 5

proportion of the labour force who are willing and able to work but have not been employed in paid work for at least 1 hour in the survey week

Question 6

What is underemployment?

Answer 6

people who are willing and able to work a ful (40 hour) week but are not employed for that time

Question 7

What is voluntary employment v involuntary employment?

Answer 7

voluntary employment: if a worker decideds to leave a job to search for another job

involuntary employment: when a worker is laid off from their place of work

Question 8

What is frictional unemployment?

Answer 8

>mismatch between skill set and supply of jobs (demand supply mismatch). Due to the changing nature of society

• as a result it takes time and effort for workers to find suitable jobs and for employers to find suitable employees
• the friction associated with job search (uncertain matching od demand and supply across the labour market) is responsible for around 1-1.2% unemployment of the workforce
• likely to be higher during a boom
• likely to be less than 4 weeks, rather than being a cost to the economy it has benefits, it fthe search process leads to better outcomes for firms and employees

Question 9

What is cyclical unemployment?

Answer 9

> also known as demand-deficient unemployment - it rises when there is insuffecient demand to fully employ the country’s resources.

• the demand for labour is derived from the demand for final g&s, therefore it can be expected to follow to business cycle
• recession: lower spending on durables leads to reductions in the level of business investment and lower business and consumer confidence which leads to low business profitability and the shedding of labour in order to reduce costs and remain viable
• boom/upswing: level of spending high-> strong demand for labour->cyclical unemployment will fall
• cyclical downturns likely to affect some sectros of the economy more i.e. durables, nonessential services (holidays). Jobs in these sectors and those that supply them with g&s will therefore be at risk

Question 10

What is structural unemployment?

Answer 10

> when there is a mismatch of available and required skills in a geographical sector of the economy

• due to the changing natur of the workforce (new jobs created from new technology and changing structure of the economy) or because the skills required don’t exist in the locale the firms require
• main cause of unemployment
• i.e. in Australia highly skilled occupations are favoured over more traditional jobs

Question 11

What is long term unemployment?

Answer 11

involving people out of work and looking for work for 12 months or more

Question 12

What is the natural rate of unemployment?

Answer 12

> minimum level of unemployment which can be achieved given the current characteristics of the labour market

• sits around 4-5% and is largely made up of persistent structural and frictional unemployment

Question 13

What is the rate of unemployment based on and how does it change when economic activity picks up?

Answer 13

it is based on the participation rate

• intially, when more people enter the workforce, the unemployment rate will increase then decrease as more jobs are created

Question 14

How is unemployment represented in the PPF and what is the GDP gap?

Answer 14

X = potential production at full employment

Y= actual production

GDP gap - difference between actual and potential output and income in the economy. It represents unemployment’s costs in terms of lost output and income

Question 15

What are the output effects of unemployment?

Answer 15

• unemployed labour represents unemployed resources, so the output of the economy must be less than its potential if resources were fully utilised (see PPF)
• another cost is welfare payments - as unemployment rises, welfare payments rise. The total direct cost in lost wages and taxes and lost welfare payments is about 4% of GDP
• this also represents an opportunity cost - the benefit that could have been obtained had the lost taxation and welfare payments been spent on infrastructure, health or education
• over the long term, persistent unemployment reduces the rate of economic growth bc the capacity of the economy to satisfy future wants is reduced

Question 16

What are the income effects of unemployment?

Answer 16

• tends to effect some groups more than others (i.e. 15-19 age group, the middle aged and ethnic minorities) for long periods of time
• despirt unemployment benefits being available, they do not provide for a comfortable lifestyle. The effects of unempl. can be particularly long lasting for those who have low levels of education qualifications and skills, and those who can’t readily adapt to the changing requirments of the work force
• there are real personal, family and social problems associated with unempl. for long periods of time -> contirbutes to financial and social cost of unemployment for society