ISSU E S
Unemployment
Syllabus Dot
Point
Measurement
Labour
force
Participatio
n rate
Unemploy
ment rate
Notes + Information
Trends
Types and
causes
Cyclical
Structural
Frictional
Seasonal
underempl
oyment
Hidden
Long term
Nonaccelerating
inflation rate
of
unemployme
nt (NAIRU)
Main groups
affected by
unemployme
nt
Effects of
unemployme
nt economic
Statistics
8,065,500
(66.5%)
employed full time
3,435,000
(28.3%)
employed part time
631,300
(5.2%)
unemployed
and social
costs
o
o
100
TYPES OF UNEMPLOYMENT:
Structural unemployment:
o Structural unemployment occurs because
some labor markets have more workers
than there are jobs available, and for some
reason wages don't decrease to bring the
markets into equilibrium.
o Another way to think about structural
unemployment
is
that
structural
unemployment
results
when
workers
possess skills that aren't in high demand in
the marketplace and lack skills that are in
high demand.
o In other words, structural unemployment
results when there is a mismatch with
workers' skills and employers' needs.
o Structural unemployment is thought to be a
Cyclical unemployment:
o It's
probably
not
surprising
that
unemployment is higher during recessions
and depressions and lower during periods
of high economic growth.
o Because of this, economists have coined
the term cyclical unemployment to describe
the
unemployment
associated
with
business cycles occurring in the economy.
o Cyclical unemployment occurs during
recessions because, when demand for
goods and services in an economy falls,
some companies respond by cutting
production and laying off workers rather
than by reducing wages and prices.
o When this happens, there are more workers
in an economy than there are available
jobs, and unemployment must result.
Frictional unemployment:
o Frictional unemployment occurs because
workers take some time to move from one
job to another. While it may be the case
that some workers find new jobs before
they leave their old ones, a lot of workers
leave or lose their jobs before they have
Generally a level of e
growth of between 2 and
required to reduce the
unemployment in Australia
determined by considering t
of labour productivity
workforce and increase in
of workers joining the workfo
Comparison of Unempl
Rates of Different Coun
Recent Periods:
United States
Australia
Singapore
Japan
Germany
7.7%
5.4%
1.8%
4.2%
5.4%
Main
Groups
Affecte
Unemployment (2012):
Category
Males
Females
Males (15 19)
Females (15
19)
Long-term
unemployed
Sydney
Blacktown
Fairfield
Indigenous
Born overseas
Unemplo
t Rate
4.8%
5.5%
17.5%
15.8%
19.0%
5.3%
11.3%
11.0%
18%
12.0%
Seasonal unemployment:
o Seasonal
unemployment
is,
not
surprisingly, unemployment that occurs
because the demand for some workers
varies widely over the course of the year.
o Pool lifeguards, for example, probably
experience a decent amount of seasonal
unemployment.
o Seasonal unemployment can be thought of
as a form of structural unemployment,
mainly because the skills of the seasonal
employees are not needed in certain labor
markets for at least some part of the year.
o That said, seasonal unemployment is
viewed as less problematic than regular
structural unemployment, mainly because
the demand for seasonal skills hasn't gone
away forever and resurfaces in a fairly
predictable pattern.
Hidden unemployment:
o Hidden unemployment refers to the levels
of
involuntary
joblessness
and
underemployment that are not counted in
the official unemployment statistics.
o People are counted as unemployed by the
ABS if:
They are not employed that is, they
have not had one or more hours of paid
From China
From
Vietnam
From
Lebanon
6.2%
7.2%
7.3%
Hardcore unemployment:
o Hardcore unemployment is a result of some
members of society who are unemployable
because of physical or mental disability e.g.
age, health, attitudinal and behavioural
characteristics.
o Most people in this category in Australia are
on the disability support pension and are
not counted in the official unemployment
statistics.
Long-term unemployment:
o Long-term unemployment refers to people
who are unemployed for over 12 months.
This may be due to lack of skills, training,
education, or the motivation to find and
secure suitable employment opportunities
in the labour market.
Underemployment:
o Underemployment
refers
to
persons
working part-time but who want to work
more hours or switch to full time
unemployment, and persons employed full
time who have been switched to part time
hours.
o The ABS calculated underemployment rate
in 2011-12 was 7.4%.
Technological Change:
o Technological change: the development
of new industries, globalisation and
geographic shifts in production often
require more capital intensive methods and
sophisticated technological skills.
o As a result, labour is often substituted for
capital equipment in the short term.
o Economic theory suggest, however, that in
the long term, this releases resources which
may be utilised more efficiently in other
sectors, leading to increased output and
standards of living.
Government Policy:
o Government policy can have an impact on
both aggregate demand and structural
change.
o Fiscal policy (government revenue &
expenditure) affects the level of aggregate
demand in the economy.
o In addition, government fiscal policy (as
part of microeconomic policy) may target
particular industries in the form of
protection.
Reducing tariffs, subsidies and quotas may
cause structural unemployment in the short
run.
Tightening of monetary policy (interest
rates) will reduce level of investment and
consumption expenditure in the economy.
Reductions in these components of
aggregate demand are likely to cause
cyclical unemployment.
Policies
to
Reduce
Cyclical
Unemployment:
o Manipulation of aggregate demand in the
economy in order to minimise the effect of
cyclical swings.
o Expansion of fiscal policy and easy
monetary policy.
o As investment is the most volatile mover,
policies to stabilise this may be particularly
important.
Policies
to
Reduce
Structural
Unemployment:
o Structural unemployment can be targeted
by
increasing
the
efficiency
and
adaptability of the economy. This may be
through
improved
educational
opportunities (e.g. accessibility to first
degree) and microeconomic reform to
increase productivity and lower costs.
o Hence, this will increase long term
unemployment.
EFFECTS OF UNEMPLOYMENT:
Output Effects:
o Unemployment means that resources are
underutilised and output therefore must be
less than with full employment. This can be
shown on the production possibility frontier.
o
o
Distribution Effects:
o Unemployment impacts young unskilled,
Aboriginals and elderly.
Economic Costs:
o Opportunity Costs: Unemployment means
that the economys resources are not being
used to their full capacity, therefore output
Social Costs:
o Increased inequality: Unemployment tends
to occur more frequently among lower
income earners such as the young and
unskilled. As unemployment means a loss
of income for these people they become
relatively worse off compared to higher
income earners
o Other social costs: Unemployment is also