week 8 Flashcards
define full employment
Full employment is when everyone who is willing and able to work at the current wage rate can find a job, with only a small level of natural unemployment
define unemployment
Refers to those over 15 working less than an hour per week and actively seeking work.
the goal of full employment
The maximum sustainable rate of reduction in unemployment by lifting the pace at which
economic growth can be maintained without running into inflationary and external pressures
Governments aim for everyone who wants a job to be employed → but in a market
economy, some level of unemployment is necessary for efficient resource allocation.
describe NAIRU
The full employment goal aims to achieve the lowest unemployment rate possible before
inflation accelerates
→ known as the Non-Accelerating Inflation Rate of Unemployment
What is NAIRU influenced by
long-term unemployment, primarily
➔
Structural
➔
Hard-core unemployment.
what’s australias NAIRU estimate and why has it changed
5% to 4.25% due to factors such as Greater labour market flexibility
●
Growth in casual and gig economy jobs
●
Rising underemployment
●
Reduced worker bargaining power
●
Increased competition in labour markets
what’s structural unemployment
When workers’ skills do not match industry needs.
what’s frictional unemployment
When workers are temporarily between jobs.
what’s seasonal unemployment
When jobs are available only at certain times of the year (e.g., fruit
pickers, ski resort workers).
what’s hard core unemployment
When individuals face barriers to employment due to physical, mental,
or other issues.
define unemployment rate
The unemployment rate represents the percentage of
the labour force that is unemployed.
how is the unemployment rate calculated
unemployment divided
by employment +unemployment
(x 100)
define the participation rate
as the percentage of the total ‘working age’ population (over 15)
who are members of the labour force → who are participating in the sense of either working or
willing and able to start work, and actively seeking work.
how to calculate the participation rate
labour force
divided by working age population
( x 100)
define hidden unemployment
Discouraged job seekers are people who want work but are not counted as unemployed because they have stopped looking due to poor job prospects
define underutilisation rate
The underutilisation rate is the percentage of the labour force that is either unemployed or underemployed, providing a broader measure of spare capacity in the labour market.
define underemployment
Underemployment is the percentage of the labour force that is employed but working fewer hours than they would like or in jobs that don’t fully use their skills or availability.
calculate the the underutilisation rate
unemployment + underemployed
divided by the labour force
(x 100/1)
define spare capacity
Spare capacity in the labour force refers to the extent to which available workers are not being fully utilised, including people who are unemployed or underemployed.
Why is the unemployment rate alone not enough to assess spare capacity in the labour market?
Because it doesn’t include underemployed workers or other factors like hours worked and job vacancies, which give a fuller picture.
What do businesses often do during economic downturns instead of firing staff?
They reduce workers’ hours to cut costs, increasing underemployment.
Why is the underutilisation rate a better labour market indicator than just unemployment?
It reflects the full extent of spare capacity and how economic growth affects jobs, wages, and inflation, making it key for policymakers.
What is the short-term effect of an increase in the participation rate on the unemployment rate?
It can cause a temporary rise in unemployment because new job seekers are counted as unemployed until they find work.
What is the long-term effect of an increase in the participation rate on unemployment?
It can lead to lower unemployment as more competition can boost productivity and lower wages, encouraging job creation.
