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Economic Policy > Module 3 > Flashcards

Module 3 Flashcards

1
Q

Stretton in Australia Fair, references Pusey’s findings regarding middle Australia, what five points does he raise?

A
  • Things are getting worse for middle Australia
  • the rich & government are to blame
  • Government needs to do more
  • Taxes should not be increased
  • Restore full employment
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2
Q

What are the economic costs of unemployment?

A
  • less goods and services produced
  • less demand for goods and services (fear)
  • discourages investment and demand for capital goods
  • Import and export consequences
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3
Q

How do those working suffer in times of high unemployment?

A
  • Increased overtime expected

* Increased stress / anxiety with reduced job security

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4
Q

What is the problem with official unemployment figures?

A

The only count those people meeting centrelink criteria.

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5
Q

What is the hidden unemployed?

A

Those not counted in unemployment figures:

  • Discouraged workers
  • Those in further education
  • Short term unemployed
  • Underemployed people.
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6
Q

What are the two types of underemployed people?

A
  • Visible - those working part time but want full time work

* Invisible - those working in an area that does not use their skills / education.

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7
Q

In Australia how many people are unemployed and underemployed?

A

Approximately 2M unemployed

Approximately 500K underemployed

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8
Q

What does unemployment and underemployment lead to?

A
  • Poverty
  • Reduced capacity for material well being
  • Increased physical health problems
  • Increased psychological problems
  • Strain and breakdown of relationships
  • Undermining of community and social cohesion
  • Reduction of educational opportunities
  • Increase in crime & anti-social behaviour
  • Reduction of availability and standards of housing
  • Risk of becoming part of a ‘cycle of poverty’
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9
Q

What are the features of welfare as applicable to unemployment?

A
  • Mixture of official assistance & private charity
  • increasingly strict criteria to qualify
  • Suitability / adequacy of available assistance questionable
  • Increasingly pressured welfare workers
  • Welfare-to-work poverty traps
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10
Q

How is employment deteriorating in Australia?

A
  • Increasing range from minimum wage to high rewards
  • Relative incomes of middle Australia are declining
  • Increasing occurrence of the ‘working poor’
  • Women are still subject to discrimination
  • Increased youth unemployment
  • Discrimination against migrants, low skills & minorities
  • Long term unemployment is a barrier to gaining employment
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11
Q

What are the long term unemployed?

A

Those continuously unemployed for 52 weeks or more.

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12
Q

What are discouraged job seekers?

A
  • Considered too young / old
  • ill health or disabled
  • Lack skills and experience
  • Different language or ethnic background
  • No jobs in locality, skills, hours or at all
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13
Q

What are the different types of unemployment?

A
  • Voluntary unemployment
  • Involuntary unemployment
  • Frictional unemployment
  • Cyclical unemployment
  • Structural unemployment
  • Seasonal unemployment
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14
Q

What is the difference between voluntary and involuntary unemployment?

A
  • Voluntary is where the person has chosen to be unemployed or leave employment.
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15
Q

What is frictional unemployment?

A

Unemployment that occurs because it takes workers some time to move from one job to another or when students move into the workforce.

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16
Q

What is cyclical unemployment?

A

Unemployment associated with business cycles, ie. higher during a recession.

17
Q

What is structural unemployment?

A

Occurs because some labor markets have more workers than there are jobs available, this could be because there is a mismatch between worker’s skills and employer needs.

18
Q

What is seasonal unemployment?

A

Unemployment that occurs because the demand for some workers changes throughout the year. eg. fruit picking.

19
Q

What is casualisation?

A

The increasing level of Australian workers who are being employed casually. Casual workers have less job and income security. Casualisation exerts downward pressure on wages and conditions.

20
Q

According to May, Campbell and Burgess, what are the casual worker myths?

A
  • casuals trade conditions for higher loadings
  • casual work is a short term bridge to better work
  • casual workers are mums and students
  • casual jobs are good - varies - some miss long term leave, and some are seeking better roles.
21
Q

Explain how economic growth and unemployment are linked?

A

Unemployment levels affect the rate of economic growth as unemployment means that the country is not at full production. It is also an indicator on the state of economic growth. There are economic costs associated with unemployment.

22
Q

What is the link between minimum wage, unemployment and job creation?

A

Gitis argues that a $1 increase in minimum wage will increase unemployment by 1.48%. Schmitt however argues that there is little evidence to suggest unemployment will rise in response to modest increases. It is likely though some effect for larger increases.

23
Q

Structural unemployment can be resolved by what three types of policy?

A
  • Policy to increase competition so wages respond to supply-demand imbalances
  • Policy to influence composition of the labour market supply - eg training and relocation allowances
  • Policy to influence demand for labor - subsidies and targeted public investment
24
Q

Prior to labour market deregulation how did the Government control employment conditions?

A

Through awards which covered pay and conditions.

25
Q

When and what was the labour market deregulation?

A

1996 - Workplace Relations Act creating Workplace agreements based on enterprise bargaining
2005 - Workchoices introduced by Coalition

26
Q

What is covered under ‘WorkChoices’?

A
  • national workplace relations system for Australia
  • increasing the capacity of employers
  • employees and unions to make agreements
  • modernising the role of awards
  • reforming the setting of minimum wage & conditions
  • reducing coverage of unfair dismissal laws
  • establishment of the Australian Fair Pay Commission to set minimum wages and conditions
27
Q

How was ‘WorkChoices’ received by the public?

A

Poorly - seen as a key reason the Coalition lost the 2007 election. On 1 July 2009 Labor’s Fair Work Act was established and this reversed many of the unpopular decisions.

28
Q

What is a poverty trap?

A

A mechanism that makes it difficult for people to escape poverty. It is created when an economic system requires a significant amount of capital in order to earn enough to escape poverty. Without this the individual may find it difficult to get out, creating a self-reinforcing cycle. Ie, tax means person earns less than they would on welfare.

29
Q

What are country poverty traps?

A

Things that keep a country poor:

  • Dilapidated or non-existent infrastructure
  • Extremely poor health
  • Overpopulation
  • Civil war
  • Extremely corrupt governance.
30
Q

Why is a country poverty trap a problem?

A

It repels foreign investment and decreases worker productivity.

31
Q

What are the two alternative policy ‘types’ that may help reduce unemployment?

A
  • Demand side policies - to reduce demand deficient unemployment (ie unemployment caused by recession)
  • Supply side policies to reduce structural unemployment
32
Q

What are the two key demand side policy options to reduce unemployment?

A
  • Fiscal policy - expansionary will increase aggregate demand and rate of economic growth. Keynes supported this.
  • Monetary policy - involves cutting interest rates to encourage borrowing and investments. It also reduces exchange rate so exports are more competitive.
33
Q

What does success depend upon for expansionary fiscal policy?

A
  • Other components of Aggregate Demand (cutting taxes may lead to saving if confidence is low).
  • Fiscal policy may suffer time lags
  • If close to full capacity, expansionary fiscal policy will cause inflation
  • requires higher borrowing - debt & interest could be problematic
  • crowding out could occur.
34
Q

What does success depend upon for cutting rates with monetary policy?

A
  • Other components of Aggregate Demand
  • Lower interest rates will only help boost spending if banks are willing to lend
  • Requires demand deficient unemployment not structural or supply side unemployment.
35
Q

What is the purpose of supply side policies?

A

To deal with microeconomic issues to overcome imperfections in the labour market and reduce unemployment caused by supply side factors. Supply side unemployment includes frictional, structural and classical (real wage).

36
Q

What are the policies to reduce supply side unemployment?

A

1) education and training
2) reduce power of trade unions
3) employment subsidies - tax break for hiring long-term unemployed
4) improve labour market flexibility - no max hours
5) stricter benefit requirements - force acceptance of roles when on unemployment
6) improved geographical mobility - tax breaks for rural development

Economic Policy (6 decks)

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