Discuss the relationship between economic growth and unemployment.

In y our
answer refer to recent data about both
Economic growth means an increase in the amount of goods and services
produced per head of the population over a period of time. Unemployment
means the portion of unemployed people who are seeking for work as a
percentage of the total labour force.
There are several unemployment factors which affect economic growth. The
labour force participation rate and the types of unemployment largely affects
economic growth because it determines the number of available workers to
create business output. For example Australias participation rate is
approximately 65%.It has decreased from 65.5% in 2009 to 64.6% in 2015.The
decreased participation rate has influenced Australias weaker economic growth
of 0.5% per quarter between 2009 and 2015 compared to historical all-time
average of 0.88% per quarter. The several types of unemployment also affects
economic growth. For example the liberalisation of Australian markets has
increased short-term structural unemployment in the country. However over
times, Australian firms restructure in order to stay profitable and become more
internationally competitive. Australias first major protectionism reforms began in
1973 where the Whitlam government announced a 25 percent across the board
tariff cut. However it was not until 1988 that Australia conducted a gradual
liberalisation of trade that continues to decrease to this day. By keeping up with
international trends,Australia s protectionism policies prompted Australias
trading partners to follow suit.Thus,Australia was able to profit significantly from
its exports and in particular in the mining industry.This is evident in Australias
sustained rate of 2.6% real gdp growth per year.
There are several economic growth factors which affect unemployment.The level
of aggregate supply and demand largely affects unemployment because it
determines the capacity for employment.For example a high level of aggregate
demand will lead to a high employment rate,according to the law of the derived
demand for labour.This is because firms receive high demand for their products
and thus needs additional labour to service increased demand.An increase in the
average propensity to consume will further lead to decreased unemployment. On
the other hand,a high level of aggregate supply means a high level of total
income within an economy.Thus businesses will have greater funds to hire more
labour and thus reduce unemployment.For example an increase of 100 million
dollars of aggregate demand can lead to 10 million dollars of profit for firms
which enables them to hire more labour,reducing employment by 1%.
Okuns law says that to reduce unemployment the annual rate of economic
growth must exceed the sum of percentage growth in productivity plus increase
in the size of the labour force in any one year.Because a higher productivity
means increased output for firms,firms generally do not feel the need to hire
workers because existing workers already produce enough output.Therefore
unemployed persons increase,increasing unemployment rate.This is evident
during the 1990s where strong labour productivity growth kept unemployment

relatively high.In the 2000s however labour productivity fell off somewhat and
unemployment fell as a result.In the long run,a higher level of productivity
growth should lead to stronger economic growth and more job creation.However
in the short term it would lead to increased unemployment because employers
would not need to hire as many workers.
There are various aspects that can be explored in the relationship between
economic growth and unemployment.Unemployment can affect economic
growth,economic growth can affect unemployment and Okuns rule looks at the
productivity of workers and the size of the labourforce to determine
unemployment.