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What is Unemployment?

How is Unemployment measured?


It is impossible to have zero unemployment. The ABS statistics on employment and unemployment are the product of a monthly survey based on a sample of 35,000 households. The ABS classifies someone as employed if they did at least one hour of work for pay or profit during the survey week or worked for at least 1 hour in an unpaid position on a family farm or in a family business. Persons classified as unemployed are aged 15 and over and who were not employed during the survey week, had actively looked for work in the previous month were available for work in the survey week.

How is Unemployment measured?


The unemployment rate is equal to

unemployed labourforce

X 100

The labour force is the total of the employed and unemployed. So if 1 million people are unemployed and 9 million are employed, the unemployment rate is 1/10 x 100 = 10%

Labour Force Status


Population aged 15 years and over Labour force Employed Labour force
Part
Not in labour force

Not Employed
Want to work

Full-time employment -time


Full-time employment

Dont want to work Dont want to work

under employed Marginally in the labour force Unemployed

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12

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Millions of people

Who are the Unemployed?


25

U N 20 E M P 15 L % O 10 Y M E 5 N T
0

Great Depression

1982/83 recession

1990/91 recession

GFC

1920 1930 1940 1950 1960 1970 1980 1990

2000

2010

YEARS

Who are the Unemployed?


The unemployment rate is currently about 5.1% of the labour force (June 2012). Certain groups have higher unemployment rates than others. These include: Females 15-19 looking for work 15.8 % Males 15-19 looking for work 17.5%

Lone Parent 9.8%


Cat No. 6202.0, 1301.0

Who are the Unemployed?


The disabled- 7.8%
Indigenous Australians 18% Sydney (5.1%) Statistical Local Areas
Wyong 6.8% Shellharbour 7.6% Bankstown South East (7.0%) Blacktown SouthWest (12.8%)

Fairfield East (10.8%)


Brewarrina (14.6%)
Cat No. 4430.0, 6287.0, 6250.0 DEEWR (HREOC) (immi.gov)

Who are the Unemployed?


Born Overseas
From Indian (5.5%) From Southern and central Asia (6.1%) From Lebanon (7.3%) From Vietnam (7.2%) From North Africa and Middle East (9.4%)

A migrants English speaking ability (not well) 36%-12% (6 months to 18 months after arrival) People with no non school qualifications8% compared to 2.7% for those with a bachelor degree. The long term unemployed 19.0%
Cat No. 4430.0, 6287.0, 6250.0, 1301.0,DEEWR (HREOC) (immi.gov)

What are the Types of Unemployment?


The two main types of unemployment are:
Cyclical unemployment Structural unemployment Other types include: Seasonal unemployment Frictional unemployment Hidden unemployment Hardcore unemployment There may also be underemployment in some sectors of the economy.

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Some unemployment is inevitable as people change between jobs(frictional) or may not have the skills to match the jobs available. There are some that can be influenced. The main causes of short - run unemployment is a lack of aggregate demand. This is cyclical unemployment. There is not sufficient demand in the economy to employ all available workers. This is usually what happens in recessions and depressions. The aggregate demand curve has shifted to the left leading to reduced real GDP and higher unemployment.

What Causes Unemployment?

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What causes Cyclical Unemployment?


600

AS 1
P R I C E L E V E L
500 400 300 200

AD 1
100 0 0 100 200 300

AD 2

Real GDP ($ billions)

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What causes Structural Unemployment?


Structural unemployment results when the composition of the labour force does not respond quickly or completely to changes in the demand for labour.
As a result the workers who are unemployed do not have the necessary skills to acquire the jobs that are available.

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What causes Structural Unemployment?


The structural change in the economy has occurred due to:
changes in the pattern of domestic and international demand industry restructuring to lower costs government policies, such as cuts to protection (tariffs and quotas), privatisation.

new technology, eg. automatic tellers, computer banking.

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What causes Stagflation?


Stagflation is a situation of high inflation and unemployment it is caused by increases in the costs of producing goods and services. The aggregate supply curve shifts to the left and real GDP falls and unemployment increases.
P R I C E L E V E L
700 600 500 400 300 200 100 0 0 100 200 300

AS 2 AS 1

AD 1

Real GDP

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What else causes Unemployment?


There are a number of other factors that have contributed to the rise in unemployment in Australia. These include: An increase in the Participation Rate: The participation rate is the percentage of the working age population in the labour force. It is equal to Labour force Working age population X 100 An increase in the participation rate means that a larger percentage of the working age population are working or seeking employment.

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What else causes Unemployment?


P A R T I C I R PA AT TE I O N 66 64 12 U N 10 E M 8 P L 6 O Y 4 M E 2 N T 0 2000 2011

Participation rate
62

60

R A T E

58

Unemployment rate

56

1960

1970

1980

1990

YEARS

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What else causes Unemployment?


The increase in the participation rate increases the size of the labour force and means more jobs have to be created, compared to no growth in the rate, to reduce unemployment. The higher the participation rate is, all other thing being equal, the greater unemployment will be. The participation rate has risen as a result of:

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What else causes Unemployment?


changing attitudes to women working
more part - time work being available more single parent families families needing higher incomes to pay for housing, etc.

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What else causes Unemployment?


Excessive wage levels In a free market the wage a person earns is determined by the demand for labour and the supply of labour. At the equilibrium wage level there would be no unemployment. In Australia we have Fair Work Australia and industrial tribunals that determine basic awards and minimum wage levels and in addition there is enterprise bargaining.

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What else causes Unemployment?


If the award wage level is set above the market equilibrium, then the supply of labour will be greater than the demand for labour and unemployment will occur. At a wage rate of $350, there is no unemployment. If the award wage is $400, 300 workers are supplied but only 200 are demanded, so 100 are unemployed.
700
W 600 A G 500 E 400 L E V E L S Award wage

300 200 100 0 0 100 200 300 400 Quantity of labour


D

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What are the Costs of Unemployment?


Unemployment has many economic and social costs. The main ones are: Loss of output Unemployment means that resources are not being fully utilised. The country is producing inside its production possibilities frontier. Thus there is a loss of potential output. An unemployment rate of 10% means that a country is operating at no more than 90% of its capacity. This means fewer goods and services and lower living standards. Loss of Human Capital: Human capital is the value of a persons education, skills and experience.

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What are the Costs of Unemployment?


The longer a person is out of work and not using or developing these skills the less productive they will be when they return to work. Larger budget deficits: Payments in social security for the unemployed and their dependents increases the size of any budget deficit and limits the funds that can be spent on other areas, eg. education and health. 42% of Federal Government spending is on social security and welfare. Much of this is related to high unemployment.

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What are the Costs of Unemployment?


Other costs which are mainly social but do have some economic impact are: an increased crime rate increased stress on individuals and families loss of human dignity social conflict.

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