Chapter 8: unemployment Flashcards
(96 cards)
1
Q
what is the labour force
A
the labour force (workforce) consists of all ppl who are currently working or actively seeking work - ie all employed persons plus those defined as unemployed
2
Q
what are the requirements of being considered part of the labour force
A
- ppl 15+ currently eployed for at least 1 hour per week of paid work
- self-employed ppl working for at least 1 hour per week
- persons 15+ who are not working but are currently available for work and are actively seeking work (unemployed)
3
Q
what are req’s for ppl not included in the lbaour force
A
- children under 15 years of age
- full-time, non-working students aged 15+
- people who perform full-time domestic duties
- persons not currently working who are not actively applying for jobs or who are not available to start work
- people who have retired from the labour force
4
Q
what determines the size of the labour force
A
the size and age distribution of the population, net migration and the participation rate of the working age population
5
Q
what is the working age population
A
anyone over 15
6
Q
define the labour force participation rate
A
the % of the working-age population who are in
the labour force, either working or actively seeking work (ie. employed persons + unemployed
persons)
7
Q
what is the formula for labour force participation rate
A
labour force/ population 15+ x 100
8
Q
what is unemployment
A
Unemployment refers to the situation where individuals want to work but are unable to find a job, resulting in the labour resources of the economy not being fully utilised.
9
Q
what are the classifications for someone actively seeking work
A
- regularly checking ads from different sources for available jobs
- being willing to respond to job ads, apply for jobs with employers and attend interviews
- registering with an employment agency linked to Workforce Australia
10
Q
what si the formula for unemployment rate
A
unemployed over total labour force times 100
11
Q
what are two main problems associated with current labour force statistics
A
- by classifying people as either employed or unemployed, official statistics do not take into
account the number of hours people work. there may be underemployment - By classifying people as either in the labour force or not in the labour force, unemployment
statistics do not include people who have not been able to find work and have left the labour
force – known as hidden unemployment.
12
Q
make an eg out of covid for the undertstaement of labour force stats
A
- 100k UE (still seeking work) but 600k lost their jobs cos they found it pointless
- 750k ppl still considered employed but stood down receiving jobkeeper
- this undertstaes labour market problems
- imperfect measure of spare capacity
13
Q
what si the formula for labouor underutilisation rate
A
([unemployed persons + underemployed persons] / total labour force x 100)
14
Q
why is the underutilisation rate inaacurate and how can it be better measured
A
- doesnt distinguish b/w underemployed who want a few more hours and unemplpoyed who want 3x what underemployed want
- an hours-based underutilisation rate would be required
15
Q
what is cyclical UE
A
- UE caused by a downturn in the business cycle
- downturns: fall in AD –> firms reduce output –> workers laid off to reduce costs and maintain profit lvls
- upturns: rise in AD –> need workers
- gov can increase expenditure to reduce severity of downturn –> minimising cyclical UE (fiscal response)
16
Q
what is structural UE
A
- a mismatch between the skills demanded by employers and those possessed by unemployed people
- may result form technological change (capital-labour substitution) or decline of old sunset industries (eg. manufacturing) and emergence of new sunrise industries (eg. IT, education, tourism)
- LT UE
- gov can reduce by investing in edu & training
17
Q
what are factors influencing industry shifts from old sunset industries (eg. manufacturing) to new sunrise industries (eg. IT, education, tourism).
A
- microeco reforms (eg. reducing protective
trade barriers, privatisation) - changing patterns of demand
- currency fluctuations which influence the international competitiveness
18
Q
what is frictional UE
A
occurs as people change jobs or as their economic circumstances change
as they move from one phase of life to another
- gov minimise by improving the efficiency of job placement services
19
Q
what are some egs of frictional UE
A
- school leavers looking for jobs
- people seeking to change careers
- parents leaving and re-entering the workforce after having
children - self-employed people leaving failed business ventures to join a new industry
20
Q
what is seasonal UE
A
occurs at predictable and regular times throughout the year because of the
seasonal nature of some jobs
- eg tourism-related jobs, farm labour, retailing,
lifeguards
- gov minimise thru policies that imporve occupational and geographical mobility, such as investment in transport infrastructure and the education system
21
Q
what is regional UE
A
occurs when a major industry of vital importance in a particular
geographical region reduces its demand for labour, causing widespread unemployment in the area
- eg decline in manufacturing in aus
- govs may provide regional assistance packages designed to promote growth of new industries to offset job losses
22
Q
what is hidden UE
A
Hidden unemployment refers to individuals who are not counted in the official unemployment rate because they have given up actively seeking work
- tend to rise during downturns as weaker job prospects cause jobseekers to become discouraged & leave labour force (aka discouraged jobseekers)
- other eg of hidden: ppl who want to work but not actively seeking due to lack of available or affordable childcare, short-term illness or study
23
Q
what is underemployement
A
refers to people who work less than full-time hours but would like to work more hours
- leads to lower incomes, reduced wellbeing and sign of underutilised labour
- makes UE rate look better cos more ppl employed but just less hours
24
Q
what si LT UE
A
long-term unemployment – referring to those people who have been out of work for 12 months or longer
- these ppl commonly lack the skills, training, education or the motivation to find and secure suitable employment opportunities
25
what is short term and medium term UE
Short-term unemployment refers to periods of unemployment of less than 4 weeks, while medium-term unemployment refers to periods of 4-52 weeks.
26
what are some reasons ppl out of work for long periods find it much harder to find a job
- new labour market entrants are absorbed into the workforce more quickly, especially if they have skills that are more up-to-date and attractive for employers
- LT unemployed udually suffer from structural UE (do not possess skills demanded in labour market)
- unemployed ppl often lose confidence and enthusiasm when perisstently unsuccessful
- lose contact with the world of paid work and do not learn new skills
- potential employers look less favourably
27
what is labour market scarring
refers to the long-lasting negative impacts on an individual's employment prospects and earnings resulting from a period of unemployment or underemployment
28
what is hardcore UE
term used to describe people who are out of work for so long that employers consider them unemployable
- may be considered unsuitable for work due to disability, mental illness, criminal record,
drug or alcohol abuse, attitude problems, etc.
29
what is full employment
refers to the full utilisation of the productive resources of an economy
- in the labour market specifically, full employment occurs when it is no longer possible to achieve a sustained reduction in unemployment through stronger economic growth alone
- @ full employment ther is no cyclical UE - the only UE is structural, frictional, seasonal and hard-core; and inflation starts to rise due to scarcity of labour (some unemployed still exist)
30
what is the natural rate of UE
the UE rate that exists at full employment which changes over time with changes in the lvls of structural, frictional and hard-core UE
31
why is estimating the natural rate difficult?
Because natural rate changes over time with labour market conditions and must exclude cyclical factors, even though unemployment and inflation are strongly affected by economic cycles
32
define NAIRU (non-accelerating inflation rate of unemployment)
unemployment rate that is consistent with a constant rate of inflation
- ie the lowest unemployment rate which can be sustained without an increase in inflation (the lvl of UE at which there is no cyclical UE)
- aka full employment or natural rate of UE
- tells us how to further reduce UE
- @NAIRU no cyclical UE - so an increase in EG will not further decrease UE
33
what does it mean to be above/at/below the NAIRU
- above: cyclocal UE still exists (ie where UE is higher than the NAIRU - spare capacity), gov can try to sitmulate the eco to reduce UE; downward pressure on wage growth and inflation
- at: if gov tries to reduce UE by stimulating EG --> it will only increase inflation bcos full employment --> scarce workers --> bus increase wage to entice workers --> inflation
- below the the point which there is no cyclical UE (ie where UE is lower than the NAIRU - workers are scarce), ie labour makret is tight and there will be upward pressure on wage growth and inflation
34
what happens if we try to reduce unemployment below the NAIRU (reduce UE when there are scarce workers left)
- higher eco growth --> hgih AD --> force buses to poach workers from each other by offering higher wages --> inflation cos ppl have more spending money
35
how do we reduce the NAIRU specifically
- reduce seasonal, frictional, structual, LT...
ie:
- better match skills and train them
- encourage ppl back into labour force
- Better job placement services
- Easier job or interstate mobility
- Improved access for people with disabilities
36
what is the unemployment gap
the differnece between the unemployment rate and the NAIRU at a given point in time
- important indicator of forecasts for inflation.
37
How can long-term unemployment affect the NAIRU
Long periods of unemployment can decrease an individual’s employment prospects due to real or perceived loss of skills, increasing structural unemployment after a recession
38
How can strong economic activity (diff from eco growth) reduce the NAIRU?
When economic activity is stronger, less desirable candidates are more likely to be employed, improving their future job prospects and lowering structural unemployment (e.g. significant fall in NAIRU since 2000)
39
Why shouldn’t governments try to reduce unemployment below the NAIRU
It will result in higher inflation; instead, government policy should focus on lowering the NAIRU itself
40
what does the phillips curve show
The short-term conflict between inflation and unemployment
41
explain the phillips curve and
- gov provide sitmulus to lower UE and inflation increases --> wage increases
- workers realise that their real wage (or purchasing power) has not changed since inflation increases --> want wage rise --> bus let go of workers --> goes back to UE before but now with higher inflation
- now on a higher phillips curve and now there is a vertical curve at the initial UE rate (LRPC or LRAS on the AS graph)
42
Why are policies to reduce unemployment only effective up to a point?
Because beyond full employment, they only create inflation
43
What does a lower NAIRU mean for economic growth?
It increases the economy’s capacity to grow without increasing inflation, by raising long-run AS (productive capacity)
44
what are some explanations for unemployment in aus offered by economists
- economic growth has been too low to generate adequate employment growth
- jobseekers do not have the right skills to fill job vacancies
- jobseekers do not have adequate opportunities for education and training
- structural change is creating a larger pool of workers whose skills are no longer in demand
- not enough is done to help people with mental illness or with a disability to find suitable work
- wage rates are too high, especially for low-skilled workers
- there are too many workplace regulations, discouraging employers from hiring new workers
- some people choose to remain unemployed, because they can receive government welfare
benefits instead
- workers in high-income economies like AUS whose jobs can be performed overseas cannot compete with workers in developing economies who are paid much lower wages
45
why is demand for labour a derived demand
it is derived from the demand for the goods and services that labour helps to produce
46
what are some fcators that could lead to a decline in demand
- weak consumer and business confidence, causing an economic downturn with lower domestic consumption and investment spending
- contractionary macro policies designed to dampen demand
- decrease in demand for AUS exports due to global recession, slow growth amongst major trading partners, or decline in competitiveness of AUS producers
47
what is a deflationary gap
A deflationary gap represents the difference between the actual level of output and potential output (ie. a negative output gap)
- causes increase in cyclical UE
- downward pressure that excess capacity tends to put on prices and wages
- most likely outcome is a very low (but still positive) rate of inflation
48
what does an expansionary stance in macro policy aim to do
an expansionary stance aims to increase economic growth and job creation
49
what does a contractionary stance in macro policy aim to do
A contractionary stance aims to reduce inflation,
even if this is at the cost of lower growth and higher unemployment in the short-term
50
what influences UE over the LT
- the level of sustainable eco growth
- if significant constraints on eco growth, the eco will struggle to create enough jobs to reduce UE
51
why does an increase in the labour force participation rate tend to cause an increase in the rate of UE in the ST
- labour force = employed + UE
- labour force participation rate = labour force on working age
- UE rate = unemployed on labour force
- when more ppl start looking for work, they move from being not in the labour force to unemployed (if no job)
- this increases the labour force --> LFPR goes up
- unless find job immediately, they are counted as unemployed --> UR also goes up
52
what is one of the most significant costs of structural change in the ST
a loss of jobs in less efficient industries and in areas undergoing major structural change
- due to major offshoring, as domestic buses become more integrated into global supply chains and technological change & automation
53
What is the main impact of AI and automation on Australia’s labour market in the 2020s?
AI and automation will displace many jobs (up to 1.5 million by 2030), but also create more new ones. Workers must upskill or retrain, and while some structural unemployment will occur, overall productivity and job growth in sectors like health and tech will continue as it is hard for automation to replace them
54
what si the effect of higher productivity grwoth in the short and LT
- tend to slow employment growth (or increase UE) in ST, cos fewer workers needed per unit of output
- in LT, higher productivity growth contributes to higher eco growth and therefore lower rates of UE & boosting employment by making labour more attractive relative to capital
- opposite for slowdown in productivity growth (ST: lower UE, LT: higher UE --> substitute capital for labour)
55
what are the circumstances where increased labour costs (increased wages) would contribute to an increase in UE
1. a shortage of labour can result in firms compeitng with each other for limited pool of labour, forcing up geenral wage levels and resulting in cost-push inflation (higher production costs pushed onto onsumers) --> rising inflation reuces spending --> increase in UE
2. when nominal wages rise faster than the sum of inflation and productivity increases --> profitability goes down --> buses may sub capital --> incresing UE
3. decision by FWC to inrease minimum wage and award wages --> too expensive for employers --> UE
4. a substantial rise in labour-on-costs - eg payroll tax, super, sick leave, holiday pay and workers’ compensation – can cause a decline in
demand for labour
56
what is the effect of higher minimum wage of UE rate
as minimum wage increases, buses are less likely to to hire less-skilled workers --> higher UE
however: Despite supply-side claims, evidence shows that higher minimum wages may boost job growth by increasing low-income earners’ spending power, which raises aggregate demand and the demand for labour
57
How do wages affect consumption and aggregate demand (AD)?
Lower wages reduce household spending, which lowers AD and labour demand; higher wages boost AD by increasing spending. Thus, the FWC often avoids cutting wages despite business pressure
58
How does the elasticity of labour demand affect wage changes?
Labour demand is elastic at high wages (cutting wages increases demand), but inelastic at low wages (cutting wages further won’t increase hiring, as firms won’t stockpile unneeded labour)
59
which are the main groups affected by unemployment
- young people
- people with low levels of educational attainment
- Indigenous Australians
- people living in particular regions
- people born outside of AUS
60
what are some reasons for high youth unemployment rates
- employers are seeking workers with greater skills and experience
- insufficient number of entry level jobs
- poor secondary education outcomes
- personal circumstances contributing to a lack of motivation
61
how did covid affect young workers
- most lost jobs cos they help more casual/PT jobs
- but benefitted from the post-covid recovery, since labour shortages and low migration
62
What long-term issue contributes to high youth unemployment?
Education that doesn’t equip young people with workplace-relevant or tech-focused skills
63
How do employment outcomes differ for Indigenous Australians?
Unemployment is nearly 3x higher, and labour force participation is much lower, especially in remote areas
- reasons for high Indigenous unemployment: Low literacy, social disadvantage, welfare dependency, and prejudice
64
How do migrant unemployment rates change over time and what are some trends?
They fall with time — migrants living in AUS for 10+ years often have lower unemployment and higher participation than locals
- lowest UE: Skilled migrants, followed by family migrants and humanitarian migrants
- Migrants from English-speaking and advanced countries have lower unemployment than those from developing or non-English-speaking countries
65
what is the primary economic cost of UE
the opportunity cost of lost output and income, creating a drain on economic growth by restraining both AS and AD
66
how does unemployment affect Aggregate Supply (AS)?
Unemployment means resources are underutilised, so the economy operates inside its PPF and real GDP is below potential GDP (LRAS)
67
How does unemployment affect Aggregate Demand (AD)?
It reduces household income and spending, lowering AD and slowing economic growth
68
What is the multiplier effect of rising unemployment?
A fall in income reduces consumption, which lowers investment, leading to a larger-than-expected fall in real GDP
69
what is Okun's rule of thumb
that a 1% increase (or decrease) in the unemployment rate is associated with a 2% decline (or increase) in real GDP
70
what are some reasons for the rule of thumb (ie why output tends to decrease (or increase) more rapidly than unemployment increases (or decreases)
- the impact of the multiplier
- changes in hidden unemployment
- changes in hours worked for PT, casuals and contractors
- changes in labour productivity as demand for output changes
71
How does unemployment affect living standards?
- lowers income and welfare dependence, reduces access to discretionary spending, req higher taxes or cutbacks in public services to provide welfare
72
What is the impact of unemployment on human capital?
Long-term unemployment erodes skills, motivation, and employability, leading to structural unemployment — a process known as hysteresis
73
What are the fiscal costs of high unemployment?
Lower tax revenue and increased spending on welfare and training, worsening the budget deficit and raising public debt
74
How does unemployment affect wage growth?
High unemployment creates spare labour, putting downward pressure on wages, though nominal wages are sticky due to awards and agreements
75
When does wage growth tend to be low or high in relation to the NAIRU?
- low wage growth: Unemployment above the NAIRU (positive unemployment gap) (ie UE is high --> bigger pool of workers --> low wages)
- High wage growth: Unemployment below the NAIRU (negative unemployment gap) (ie UE is low --> smaller pool of workers --> buses offer high wages)
76
why was wage growth significantly lower than expected during 2013-2022
- higher underemployment from 2013-2021 - underemployment represents spare capacity in the labour market but is not reflected in the unemployment gap (ie. the presence of underemployment means that the unemployment gap is really larger than it appears to be)
- public sector wage caps - legislated maximum pay
rises --> limited wage growth for public sector and and indirectly
reduced private sector
- low productivity growth - though some argue that low wage growth ahs contirbuted to low productivity growth
- decreased employee bargaining power - falling rates of unionisation and unfavourable changes in workplace laws
77
What does the gap between real wage growth and productivity growth indicate?
Profits have increased at the expense of wages, with workers receiving less of productivity gains.
78
what are some social costs of rising income inequality?
- Higher poverty
- Greater class division
- Reduced social cohesion
- Intergenerational disadvantage
78
How does rising unemployment affect income distribution?
It makes income distribution less equal by reducing income for the unemployed and widening the gap with those still employed.
- young and unskilled most likely affected
79
How does inequality reduce economic growth through AD?
Lower consumption, since richer households save more (higher MPS) and spend less (lower MPC) --> lower eco growth
80
How does inequality reduce economic growth through AS?
lower income HHs --> lower education outcomes, reducing labour quality and productive capacity
81
What personal and social problems are linked to long-term unemployment?
- Poverty and financial hardship
- Debt and housing issues
- Family breakdown
- Skill loss and social isolation
- Crime and mental/physical health issues
- Lower self-esteem and higher suicide risk
82
How does unemployment create economic costs for the community?
It increases government spending on services like health, welfare, law enforcement, and prisons
83
what is jobless growth
an increase in labour productivity or in the size of the labour force can lead to real GDP growth without a decrease in the unemployment rate
- menaing grwoth rates need to be high enough to generate sufficient job creation for new labour market entrants as well as the existing unemployed
84
how can gov reduce structural UE
implement labour market policies that address the mismatch of skills possessed by jobseekers and demanded by employers through retraining programs
85
how can gov reduce cyclical UE
government policies should focus on stimulating eco growth
86
what is a major limitation of policies to reduce unemployment
they often reflect
changing views or beliefs on the causes of unemployment based on the political ideology of the government of the day, rather than actual conditions in the eco and in the labour market.
87
What did Treasury estimate JobKeeper prevented?
The loss of 700,000 jobs and a rise in unemployment to 12.5%.
88
What are some examples of AUS microeconomic reform policies?
Tariff reduction, deregulation, competition policy, privatisation, and tax reform
89
Tariff reduction, deregulation, competition policy, privatisation, and tax reform
It improves efficiency, competitiveness, and productivity, promoting long-term employment growth
90
What are labour market policies used for?
To reduce unemployment through training, job-matching programs, wage subsidies, regulation and increased migration intake
91
What were the recent changes to the Fair Work Act under the Albanese government?
Reforms aimed to reduce gender discrimination, protect casual employees, and improve work flexibility
92
what are some welfare-to-work measures used by governments?
Longer waiting periods, stricter eligibility rules, and requirements to apply for jobs or training
93
What concerns have been raised about the low level of unemployment benefits?
They hurt equity and job prospects by making it harder for people to afford costs assoicated with job-seeking
94
What is a poverty trap or welfare trap?
A situation where high taxes or loss of welfare payments make work financially unattractive for low-income earners
95
what are some initiatives and programs supporitng employment
- NSW Fee Free and Smart and Skilled programs - State initiatives offering free or subsidised training to improve job opportunities
- Hunter Advantage Fund - program supporting job creation in the Hunter region after the 1999 steelworks closure
- Global Business and Talent Attraction Taskforce - attract skilled migrants and address skills shortages after reopening borders
- Workforce Australia Online - government platform launched in 2022 to connect jobseekers with employers, focusing on the most disadvantaged
- National Skills Passport - upcoming system to help match workers with jobs based on their qualifications, still in consultation as of 2024
