Economics for Business

Prepare a report on topic, "Unemployment – Discuss the unemployment rate, types, issues, and government policy of Australia and comment unemployment in various states of Australia".

Introduction

Unemployment can be regarded as a torment in every countries that handicaps all the steps of the economic development of the country. It brings along the poverty and anguish and also the exclusion of the standard methods of life. It not only restricts the development of the building blocks of the nation i.e. the children but also produces warfare and complications in the families. Almost every market economies experience some or the other kind of unemployment arising either from the beginning, development and downturn of the industries.
The economy of Australia has experienced huge alterations in the structure of its production. The reasons for these alterations can be the innovations and the changes in technology, the fuller assimilation into global markets along with the increasing clash from lower-wage economies in the manufactured goods production and the innovations and  adjustments in the consumption pattern when actual salary increase. The continued loss of jobs in the sound production has led to a major declination in employment opportunities especially for men who are deprived of sound education and academics. In part, this has shown up in unemployment statistics. Contradictingly, the extending areas of the economy are specfically hiring women, whose paid work share has been increasing steadily specifically for the married women and the women with dependent children.
 In a country like Australia, formal economy is responsible for the goods and services production and each and every individual of Australia works for the wages. Australia had adopted the international standard definition of unemployment. According to ABS, "unemployment is when people are not able engage themselves for atleast an hour of work in the preceding week, and they were constantly looking for work and had even accepted work in the following week if it is provided to them." A person is considered to be employed if he has worked for atleast an hour in the preceding week. Different incomes would be provided to people working for different amount of time.The Australian Bureau of Statistics (ABS) has acknowledged this point by assembling some measures of under-employment and unemployment.

Discussion

According to a survey every month, the labour force status of 50,000 people are evaluated by the Australian Bureau of Statistics (ABS). Individuals who worked of an hour or more were termed as ‘employed’ and the term "unemployed" has been used for those who were not employed, but were actively searching for a job and are ready to join the firm immediately..
There are three types of unemployment:
•         Cyclical unemployment: When the economy of a country enters the downturn or recession and is below its highest capacity, cyclical unemployment takes place. Severe recessions in any economy results in high levels of cyclical unemployment. Various ups and downs occurring in the economy is the fundamental reasons for this type of unemployment is due to resulting in lower job openings and increased number of unemployed people. Therefore, it is related to the trends in growth and production occurring within the business cycle. When these businesses are at their apex, the cyclical unemployment is lowest because of maximisation of total economic output. When economic output declines, that is measured by the Gross Domestic Product (GDP) then the cycle is weak and cyclical unemployment rises.
•         Structural unemployment occurs due to mismatching of skills between the skills that the employers need and the skills that the employees have. The social requirements of people and the alterations in a particular economy are some reasons of this kind of unemployment. Improvement in technology, finding lower costs of labour overseas are some reasons leading to this type of unemployment. Therefore, this type of unemployment focuses on the structural problems in an economy and incapability in labour markets.
•         Frictional unemployment results when people take alot of time in taking up a job after leaving their previous job. It depends on the time the workers took to find new jobs. It also occurs when employers lack detailed information or incorrect information. Frictional unemployment results from a regular movement of people in the labour market. According to the srEach year, around 1 million working individuals change thier jobs. Additionally their is a whole lot that changes jobs or their work place owning to their family problems or related issues.  Due to this tranisition in jobs, effective allotment of individuals working in a firm takes place.
Long-term unemployment:
Usually people can handle the trauma of unemployment if it lasts only for a small period of time. But if it persists for a longer period of time then the actual damage is done to an individual, be it financially, psychologically or even economically. Leading to, all the provisions made for future like savings etc. are eventually exhausted; important assests like land or family house have to be morgaged or sold; people then become agitated and depressed by continued failures getting work; talents and skills start to disintegrate and along with it the families experience immense depression and helplessness, that can have adverse effects like family collapse and warfare. There depicts a strong and firm evidence that the individual had a lower chance of finding work in the next period, if they have been unemployed for prolongled period of time. It is therefore critical to consider that this long-term unemployment has reduced with the declining unemployment rates and statistics.(UNEMPLOYMENT IN AUSTRALIA, 2016)
Under-employment:
The recent Australian record on unemployment, as measured, is undeniablly good. But we need to reconsider that the person will be termed as an employed worker only if he works for atleast one hour in a week. Additionally, the person will be called unemployed if they are engaged in the work where they get paid or they are eargerly seeking for the job. Thus, there are probabilities that Australia will have lower rate of unemployment along with a large amount of individuals who are seeking any kind of job other than the one they are currently in.(UNEMPLOYMENT IN AUSTRALIA, 2016)
Out of the three types of unemployment as discussed, the cyclical unemployment has been found to be the actual source of spare capacity as it helps to determine when the economy is producing something below its potential. But the other types i.e the frictional and the structural unemployment are not able to represnt the number of unemployed people who could be provided with employment or any job if demand was higher.
The spare capacity extent in the economy exercises an influence on the prices and wages. Overabundance capacity for goods and services in the market leads to placing of downward pressure on inflation in their costs. Similarly, a download pressure is seen on the growth of wages due to spare capacity. Conversely, an overabundance of demands results in the quicker inflation in the wages as well as the prices in the economy. Unemployment rate is a beneficial portion of spare capacity. Hence, it is noticed that the unemployment rate should have an inverse relationship with the inflation of wages as well as prices. This inverse relationship is termed as the Phillips curve. This curve have been seen frequently in the Australian data for past 20 years. The duration with higher unemployment rate are tended to be related to gradual inflation in wages as well as prices. (Graph 1) (UNEMPLOYMENT IN AUSTRALIA, 2016)
 
A recent refinement to the natural rate of unemployment model is the Non- Accelerating Inflation Rate of Unemployment or the NAIRU. The unemployment rate corresponding with no excess- demand pressure on the inflation is identified in the model as the NAIRU.
Three different assessments of the NAIRU are created using various assessments of inflation: 
(a.)  Fundamental inflation assesed by weighted median measure of inflation in the consumer price index (CPI); 
(b.) Inflation based on the Australia domestic final demand deflator (DFDD); and 
(c.)  Inflation of the worker costs on the basis of the national accounts measure of unit labour costs (ULC). These three NAIRU estimates have varied in over a duration of time.(Graph 2). A positive breach is seen in between the real unemployment rate and the assesments collected by the NAIRU. (UNEMPLOYMENT IN AUSTRALIA, 2016)

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The unemployment rate in October 2015 as reported by the ABS decreased in New South Wales (-0.1% to 5.9%), South Australia (-0.2% to 7.7%), Queensland (-0.1% to 6.3%) and Tasmania (-0.4% to 6.0%). In Victoria, the unemployment rose up 0.1% to 6.2%, whereas in Western Australia was steady at 6.1%. The unemployment rate in the Northern Territory edged up 0.2% to 4.9% while in the ACT it inclined 0.2% to 5.1%. Comprehensively, the national unemployment rate steady at 6.2% courtesy of a 0.1% decrease in labour force participation to 64.9%. Whereas, in September 2005,  Western Australia experienced the minimum unemployment rate of all the states at 3.9%. South Australia and Queensland had unemployment rates of sub-5% at 4.6% and 4.9% respectively, due to heavy exposure to mining. New South Wales, the state currently with the minimum unemployment rate, sat at 5.3%, a comparatively high level for the time. (Scutt, 2015)

 Whereas, the unemployment rate in December 2015 for different states of Australia was
 
It is therefore necessary consider and tackle the reasons that are responsible for unemployment. These reasons can include the following groups:
• People who use to work in the past two years but they have left their last work involuntarily (e.g. victims of recession). For example when companies usually retrench their workers in the hours of recession or whenever a fall in demand occurs in their business and vice versa. Expectedly, over the time this factor has proved to be is hugely cyclical and includes the highest number of unemployed individuals. 
• People who have worked somewhere in the past two years but these people have left their last job/work place voluntarily (e.g. resigned). Most of these people suffer greatly from frictional unemployment and they leave their job in order to seek a better working place. This category of unemployed people include 1 and a half percent of the worker force and proved to be a stable one out of all category.
•Former workers, who used to work in the past but these people have not joined any work place in the last two years. These individuals suffer tremendously and are termed as structurally unemployed. In contrast to long-term unemployment, this factor includes people who are now not searching for job for a long time after leaving their last job.
• People who are termed as freshers and are looking for their first job.(UNEMPLOYMENT IN AUSTRALIA, 2016)
 
Factors affecting unemployment in Australia:
There are many factors affecting the unemployment rate in Australia, according to a survey have been grouped into three categories:
•A decline in the demands of labours and workers resulting in shortage of opening in the workplace or presence of heavy number of applicants for the available opening.
 •The individual might be looking for some other job than the ones where the vacancies are present. This mismatch can be the reason of difference in characteristics of the job and the seeker, or may be the seeker does not have sufficient experience or various other requirements that are not with the seeker. Thus, these individuals suffer from frictional and structural unemployment due to the time consumed in searching for an appropriate job.  
 •No obstacles in finding the job, which indicates the case of frictional unemployment. Unemployment that is present due to scarcity of labours and workers is a part of cyclical unemployment, which have rose prominently  in early 1990s recession, before rising again at the dawn of global economical catastrophe then declined again to extremely depressed levels by the middle of 2000s. (Graph below).
 
Policies to Reduce Unemployment:
The policies to reduce unemployment and to move the economy on a path towards full employment or the NAIRU is grouped into two broad categories:
A.    Those designed to alleviate the cyclical unemployment and
B.     Those suitable for alleviating the structural unemployment.
 Monetary and Fiscal Policies: Designed to alleviate the Cyclical Unemployment: With regards to cyclical unemployment, monetary and fiscal policies have been the traditional ammunition and weapons against the cyclical downturns in the economy and the inclining levels of unemployment that accompanies periods of slower economic activity. Fiscal stimulus (expansionary fiscal policy) and the easing of the monetary policy have the potential to stimulate aggregate demand that can lead to increased output of goods and services in the economy.
Experience in the economies such as Australia over the last couple of decades has clarified that the monetary and fiscal policies are ineffective regarding lowering structural unemployment and encouraging longer-term employment. Greater emphasis has been placed on microeconomic policy in the form of the labour market policies, education and training programmes and government employment programmes to help workers and employers adjust to the structural changes that take place in the workplace.
 Policies to Assist Disadvantaged Members of the Labour Force:
Recently, a lot of attention has been focused on the need to devise and implement the labour market policies to assist disadvantaged members of the labour force in gaining employment. 2011 Commonwealth Budget announced some measures that were designed to encourage skill – building and participation in the workforce by disadvantaged groups.
Unemployment and Labour Force Underutilisation:
The Australian labour market proved to be extremely resilient during the GFC, with the rise in the unemployment rate being contained to a modest 1.6%. The Australian economy experienced an inclination in the unemployment rate from a 4 2% low in 2007-08 to an apex of only 5.8% in 2008-09.The number of people unemployed rose by 189,100 from 473,800 people in 2007-08 to 662,900 people in 2008-09 or 5.8% of the total labour force.
Labour Force Underutilisation:
The Productivity Commission (2010) observed that there is an expanding level of criticism of the accuracy of the Australian unemployment data and the way we have defined and measured the unemployment. More specifically, it had been claimed that ABS definitions of employment and unemployment have not been changed for decades and that there is a high reserve of under - utilised workers that are creating a grave distortion in the Australian labour market.
This has led to the calculation of the labour force underutilization rate by the ABS (equal to the sum of the unemployment rate and the underemployment rate) which was measured at 10.4% of the workforce in August 2010.
While the official ABS data is found to be extremely useful for making comparisons between the state of Australian labour market and those of other economies, it tends to mask some of the deeper seated complications that continue to hinder the efficiency and equity of labour market outcomes. Issues such as the count of ‘discouraged workers' who fail to be official unemployment figures, mature-aged workers who used to feel discriminated against by contemporary recruitment practices and the mothers who used to find it near impossible to negotiate more flexible work hours remain far from being resolved.
Job Insecurity and Underemployment:
The issue of job insecurity and the risk of labour market participants experiencing underemployment has received heightened attention over recent years. It would seem fair to conclude, that despite the success of labour market programs in bringing the unemployment rate down Job Insecurity and Underemployment market programs in bringing the unemployment rate down towards its natural rate (or the NAIRU) over the past couple of decades, there is still scope for not only reducing welfare dependency but also greater assistance to help discouraged and under- utilized workers return to full-time employment.
There are various plausible logics as to how the structural and frictional unemployment can change over time although again it is tough to attribute changes to distinct reasons. Few contributing factors that have been widely discussed previously include:
•Hysteresis. One critical factor over the time may have been the hysteresis. It has been suggested that the high unemployment rate in the early 1990s had impacted the employment factor and effected the employ-ability of individuals who are looking for ajob. Subsequently, the economic conditions have advanced over an extended duration which might be the reason for declining rates of structural unemployment. In the past few decades, only a few individuals have experienced a severe case of longer unemployment thus a generation of youngster have been enjoying sound employment offers. 
•Economic reform. The ongoing economic reforms in Australian economy have helped lower the unemployment, structural unemployment to be precise. However, the timing and impact of these reforms are found to be tremendously difficult to measure. 
• Search technology: The improvement in search technology have developed the ability of reducing the unemployment rate. But the evidences are not clear for this effect as the components responsible for unemployment rate have not lowered down over the time.
• Labour supply Alterations: The factors attributable to spare capacity have changes with time. Thus providing enough proof that conditions like ‘underemployment’ have risen along with the unemployment with time. Eventually, it has been concluded that the lower unemployment rate compared to the past few years is associated with the overall spare capacity .
•Structural change. There has been a tremendous boost in the advancements done in the structure of the economy in past 10 years. This change can be related to the boom in trading and production. Eventually, building up the pressure on structural unemployment that leads to lowering the adaptability of matching between individuals and the opening of job.

Conclusion

Unemployment has been a severe affliction of Western economies, including that of Australia, since the dawn of the post-war boom in the early 1970s. The trade markets in Australia experienced a cycle of boom and then again recession for a prolonged period of time that caused an extremely high rate of unemployment. The problem of unemployment in Australia was seen to be highest at the time of recession because of deaths of various firms and businesses. When the trade market started to recover from the losses made in recessions, another recession started to rise. Australian economy has therefore undergone a series of ups and down and through sound management in macroeconomic areas, it has tried to avoid a humongous recession in the past few years. These policies have led Australia and have decline the rate of unemployment. Thus this declining rate has been beneficial for the working population of Australia which included the younger generation, the older generation and also the ones who were long-term unemployed.
The unemployment front of Australia has been declining repeatedly with many successes in their policies and developments in its economy. But a smaller lot individuals are finding it difficult to obtain sufficient time or hours of work and thereby are having problems in continuity of their employment status. The main complications are the scarcity in the opportunities related to employment for people who don’t have sound educational background and the problem of substituting the part-time employment to full-time.
If the Australian government can keep the economy at high levels of capacity utilisation, without any commotion in the inflation front then the individuals with low academic literacy and education and the part-time workers can have an optimistic future and can lead Australia to be the highest economy in the world.

References

•  Unemployment and Spare Capacity in the Labour Market. (2016). 1st ed. [ebook] Reserve Bank of Australia. Available at                                                                    http://www.rba.gov.au/publications/bulletin/2014/sep/pdf/bu-0914-2.pdf [Accessed 29 Jan. 2016].
•  UNEMPLOYMENT IN AUSTRALIA. (2016). 1st ed. [ebook] Available at: http://www.flinders.edu.au/sabs/nils-files/publications/discussionpapers/Unemployment_in_Australia_2.pdf [Accessed 29 Jan. 2016].
•   Kennedy, P. (2016). UNEMPLOYMENT.
•   http://lmip.gov.au/default.aspx?LMIP/LFR_SAFOUR/LFR_UnemploymentRate
•   Scutt, D. (2015). MAP: Here's the unemployment rate for every state and territory in Australia.[online] Business Insider Australia. Available at http://www.businessinsider.com.au/map-heres-the-unemployment-rate-for-every state-and-territory-in-australia-2015-10 [Accessed 29 Jan. 2016].
•    Profile.id.com.au, (2016). Employment status | Australia | profile.id. [online] Available at: http://profile.id.com.au/australia/employment-status [Accessed 29 Jan. 2016].

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