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Chapter 8: Unemployment
Chapter 8
Unemployment
THE MEASUREMENT OF UNEMPLOYMENT
Achieving full employment in the labour market is a major macroeconomic objective of the Australian
government. After the 1990-91 recession the unemployment rate peaked at 11.2% in 1992. However by
2007-08 it had fallen to an historic low of 4.2%, after seventeen years (from 1991 to 2008) of consecutive
economic growth. In 2008-09 the impact of the Global Financial Crisis led to the unemployment rate
rising to 5.8% but a recovery in economic activity in 2010-11 helped to lower unemployment to 5.2%
by 2012. However in 2013 it had risen to 5.7% of the labour force as economic growth slowed due to
lower global growth and the peak in mining investment had been reached.
Unemployment is measured as the percentage of the Australian labour force classified as unemployed.
The Australian labour force refers to all persons of working age (i.e. between 15 and 64 years old) who
are either employed in full time or part time work, or are unemployed, but registered as actively looking
for work (refer to Table 8.1). The labour force is calculated by using the following equation:
Total Australian Labour Force = Employed (part time + full time) + Unemployed
The Australian Bureau of Statistics (ABS) uses the following definitions to determine the persons who
are counted as part of the Australian labour force or workforce during its monthly labour force survey:
The employed include persons aged 15 years and over who during the ABS reference week worked
for at least one hour per week for pay, profit, commission or payment in kind in a job, business
or on a farm; or worked for one hour or more without pay in a family business or on a farm; or
were employees who had a job but were not at work because they were on paid leave, on a shift
arrangement, on strike or locked out, or on workers compensation.
Employers or own account workers (i.e. the self employed) who had a job, business or farm.
The unemployed include persons 15 years and over who were not employed during the reference
week, but had actively looked for full time or part time work and were available for work, or were
waiting to start a new job at any time in the four weeks up to the end of the reference week.
Table 8.1: The Australian Labour Force 2006-07 to 2012-13
Full Time
Employed Persons
Part Time
Employed Persons
Unemployed
Persons
Labour Force
2006-07
7,393,300
2,941,200
489,000
10,823,500
2007-08
7,664,600
3,051,100
473,800
11,189,500
2008-09
7,611,800
3,150,600
662,900
11,425,300
2009-10
7,880,000
3,353,100
607,000
11,840,100
2010-11
8,082,100
3,373,000
591,000
12,046,100
2011-12
8,065,500
3,435,000
631,300
12,131,800
2012-13
8,139,900
3,520,100
706,900
12,366,900
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Chapter 8: Unemployment
Civilian Population
Aged 15+ years
2004-05
64.0
71.8
56.3
10,366,900
16,227,300
2005-06
64.4
71.7
57.1
10,591,400
16,441,400
2006-07
64.8
72.2
57.6
10,823,500
16,696,800
2007-08
65.3
72.5
58.2
11,189,500
17,139,800
2008-09
65.3
72.1
58.7
11,425,300
17,504,400
2009-10
65.4
72.4
58.6
11,840,100
18,099,700
2010-11
65.6
72.2
59.1
12,046,100
18,370,900
2011-12
65.2
71.8
58.9
12,131,800
18,595,500
2012-13
65.2
71.7
58.8
12,366,900
18,976,200
Source: ABS (2013), Labour Force, Catalogue 6202.0, July and Australian Demographic Statistics, Cat. 3101, Dec.
Those persons who are not classified as part of the Australian workforce include the following categories:
Children under 15 years of age.
Full time non working students above 15 years of age who are engaged in full time study.
Unemployed persons who are not actively seeking either full time or part time employment.
As shown in Table 8.1, in 2012-13, the Australian labour force totalled 12,366,900 persons, of which
8,139,900 or 65.8% were employed full time; 3,520,100 or 28.4% were employed part time; and
706,900 or 5.7% were classified as unemployed. The size of Australias labour force is determined by
the following four specific factors: the size and growth rate of the population; net migration; the age
distribution of the population; and the participation rate of the working age population:
1. The size of the Australian population in 2012-13 was approximately 22,906,400 persons. The
civilian population over 15 years of age was 18,976,200 in 2012-13, but only 12,366,900 were
counted as part of the labour force (refer to Table 8.2). This meant that the participation rate in
2012-13 was 65.2%. Population growth (394,200 in 2012-13) is influenced by the rate of natural
increase and net migration. The population growth rate (1.8% in 2012-13) is equal to the sum of
the rate of natural increase (158,300 in 2012-13) plus net migration (235,900 in 2012-13) i.e.
Chapter 8: Unemployment
12,366,900
18,976,200
100
x 1 = 65.2%
In 2012-13 the participation rate was 65.2% down from 65.6% in 2010-11 (see Table 8.2). The
participation rate varies with the level of economic activity, rising during booms (e.g. from 63.5%
in 2003-04 to 65.3% in 2007-08 and 2008-09) when more jobs are available. It tends to fall during
recessions or periods of low growth when unemployment rises and job vacancies fall (e.g. from
65.6% in 2010-11 to 65.2% in 2011-12). Two groups that have an impact on the participation
rate are young people looking for their first job (such as students and school leavers) and women
with young children returning to the labour force. The participation rate for males is higher than
for females but the participation rate for females has tended to increase over time (e.g. from 55.6%
in 2003-04 to 59.1% in 2010-11) whereas the participation rate for males has tended to remain
relatively stable at around 72%. Participation rates for males, females and persons were relatively
stable during the period of weaker labour demand associated with the Global Financial Crisis in
2008-09, but declined slightly in 2012-13 because of slower growth in the Australian economy.
Unemployment refers to people who are willing and able to work, actively seeking work, but are unable
to find suitable employment. In Australia, unemployment is measured by a monthly Australian Bureau
of Statistics (ABS) telephone survey of the labour force. To be counted as unemployed by the ABS
labour force survey, a person must be available for work and fall into one of the two following categories:
1. Had actively looked for full time or part time work at any time in the four weeks up to the end of
the reference week and were available for work in the reference week; or
2. Were waiting to start a new job within four weeks from the end of the reference week and could
have started in the reference week if the job had been available then.
The unemployment rate is calculated as a percentage of the labour force, which includes all persons
employed (i.e. full time plus part time workers), plus all unemployed persons i.e.
Unemployment Rate =
In 2012-13 there were 8,139,900 persons employed full time, 3,520,100 persons employed part time,
and 706,900 persons classified as unemployed. This gave a total labour force of 12,366,900 persons.
The unemployment rate calculated by the ABS in July 2013 was therefore 5.7% i.e.
Unemployment Rate for July 2013
706,900
12,366,900
100
1
= 5.7%
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Chapter 8: Unemployment
00-1 01-2 02-3 03-4 04-5 05-6 06-7 07-8 08-9 09-10 10-11 11-12 12-13
Another trend in unemployment in Australia is the high incidence of long term unemployment (i.e.
persons unemployed for more than 12 months) and the increasing duration of unemployment. Long
term unemployment rose from 14.2% to 19.5% of the total number unemployed between 2007-08
and 2010-11 before falling back to 18.6% in 2012-13 as shown in Table 8.3. The average duration of
unemployment was around 56.3 weeks. The major reasons for being unemployed between 2009-10 and
2011-12 are shown in Table 8.4. The reasons for unemployment in 2011-12 included the following:
Loss of job or being made redundant accounted for 35.7% of the total unemployed;
Labour Force
Persons
2006-07
10,823,500
489,000
4.5%
16.9%
3.3%
2007-08
11,189,500
473,800
4.2%
14.2%
3.7%
2008-09
11,425,300
662,900
5.8%
15.7%
1.3%
2009-10
11,840,100
607,000
5.1%
18.7%
2.3%
2010-11
12,046,100
591,000
4.9%
19.5%
1.9%
2011-12
12,131,800
631,300
5.2%
18.7%
3.4%
2012-13
12,366,900
706,900
5.7%
18.6%
3.0%
Source: ABS (2013), Labour Force, Catalogue 6202.0, July and Catalogue 6291.0.55.001.
Chapter 8: Unemployment
Table 8.4: Unemployed Persons in Australia - Reason for Leaving Last Job 2009-12
Job
Loser
Job
Leaver
Percentage of Unemployed
Never Former
Worked Worker
90,500
26.1%
20.1% 14.6%
2010-11
215,300
143,200 128,300
117,400 35.6% 23.7% 21.2%
19.4%
2011-12
225,400
146,900 141,200
117,400 35.7% 23.3% 22.4%
18.6%
Source: ABS (2012), Australian Economic Indicators, Catalogue 1350.0, July.
Never having worked (looking for a first job) accounted for 22.4% of the total unemployed; and
Being a former worker (re-entering the labour force) accounted for 18.6% of the total unemployed.
There was an increase in the percentage of job losers between 2007-08 and 2008-09 because of the
impact of the Global Financial Crisis. However the percentage of job leavers fell as workers placed more
emphasis on job security. The percentages of first time workers and former workers fell in 2008-09 as
some workers gave up looking for jobs as the labour market weakened due to the GFC. But jobs growth
occurred between 2009-10 and 2010-11 due to economic recovery, and there was a decline in job losses.
In 2011-12 an increase in job losses occurred due to the uneven pattern of growth in the Australian
economy and the negative impact of the high value of the Australian dollar on the competitiveness of
manufacturing firms such as Toyota, Holden, Ford and Blue Scope Steel which retrenched workers.
Unemployment rates according to sex and age between 2006-07 and 2012-13 are shown in Table 8.5.
The unemployment rate for young (15 to 19 years) males and females looking for full time work was
four to five times the rate for males and females over twenty years of age. Young males (15-19 years)
had an unemployment rate of 23.2% in 2012-13 compared to 5.4% for males 20 years and over.
The corresponding unemployment rates for females were 29.6% and 6.2%. Young people therefore
experience more difficulty in securing employment because of a lack of skills, training and experience.
This leads to high rates of youth unemployment for 15-19 year olds seeking their first job.
The distribution of unemployment between Australian states changed between 2006 and 2008 as the
labour market reached full employment. Most states recorded falls in their unemployment rates in 2008
(see Table 8.6), with the lowest unemployment rates in the resource rich states of Western Australia
(3%) and Queensland (3.8%) which had strong labour demand due to the global resources boom.
Table 8.5: Unemployment Rate by Sex and Age Group 2006-2013 (annual average %)
2006-07
17.1
3.5
22.5
4.6
2007-08
15.4
3.1
21.2
4.0
2008-09
24.1
5.4
29.2
5.6
2009-10
22.1
4.2
27.6
5.1
2010-11
19.6
3.9
24.3
5.3
2011-12
21.7
3.9
26.0
5.4
2012-13
23.2
5.4
29.6
6.2
Source: ABS (2012), Australian Economic Indicators, Cat. No. 1350.0, July and (2013) Labour Force, Cat. 6202.0.
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Chapter 8: Unemployment
NSW
VIC QLD
- September 2008
4.9%
4.4%
3.8%
- June 2009
6.4%
6.0%
- July 2010
5.4%
- July 2011
SA
WA
TAS Australia
5.8%
3.0%
3.8%
4.3%
5.5%
5.4%
5.2%
4.6%
5.8%
5.4%
5.5%
5.3%
4.1%
6.5%
5.3%
5.2%
4.9%
5.4%
5.2%
4.1%
5.3%
4.9%
- June 2012
5.1%
5.3%
5.1%
5.9%
3.6%
7.0%
5.2%
- June 2013
5.4%
5.7%
5.9%
7.1%
4.6%
8.2%
5.7%
All states had strong employment growth in 2008 and the national unemployment rate fell to 4.3% (see
Table 8.6). The global resources boom and rising terms of trade led to a reallocation of the economys
resources (such as labour and capital), away from the non resource rich states of NSW, Victoria and
South Australia, to the resource rich states of Western Australia and Queensland, where mining accounts
for a large proportion of their state product. They recorded higher economic and employment growth
and lower unemployment rates than non resource rich states between 2003 and 2008.
The impact of the Global Financial Crisis and recession in 2008 led to negative employment growth
and rising unemployment rates in all states in 2009, with the national unemployment rate increasing
from 4.3% in 2008 to 5.8% (see Table 8.6). Large rises in unemployment in Western Australia and
Queensland reflected a contraction in mining output, whilst in the larger states of NSW and Victoria
it was caused by a fall in employment in manufacturing and the financial sector. State unemployment
rates generally fell in 2010-11 due to a national economic recovery, but rose again between 2012 and
2013 with lower economic growth and a re-balancing of growth away from the resources sector.
REVIEW QUESTIONS
MEASUREMENT AND RECENT TRENDS IN UNEMPLOYMENT
1. What is meant by the labour force? How is the size of the labour force measured by the ABS?
Which groups are included and not included in the Australian labour force?
2. Refer to Table 8.1 and discuss the changes in the composition of the Australian labour force
between 2006-07 and 2012-13.
3. Discuss the four main factors influencing the size of the Australian labour force.
4. What is the participation rate and how is it measured? What factors influence the participation
rate? Refer to Table 8.2 and compare the trends for male and female participation rates
between 2004-05 and 2012-13.
5. What is unemployment? How is it defined and measured by the ABS? What has been the trend
in the Australian unemployment rate in the 1970s, 1980s, 1990s and 2000s?
6. Discuss recent trends in long term unemployment and the main reasons for unemployment.
7. Discuss the reasons for the higher rates of unemployment experienced by young people.
8. Account for the trends in the unemployment rates of the states between 2008 and 2013.
Discuss the impact of the Global Financial Crisis and recession on the labour market in 2008-09.
Chapter 8: Unemployment
197
Chapter 8: Unemployment
Price Level
Expenditure
AD
AS
deflationary gap
a
}
b
AS
AD 1
AD
deflationary gap
a b
AS
0
Ye
Yf
Income
AD
}
198
AD 1
Chapter 8: Unemployment
Wage Rate
SL
DL
minimum or
award wage
unemployment
W1
W
DL
SL
0
Q L1
QL
Q L2
Quantity of Labour
and footwear, steel and passenger motor vehicles have also been forced to reduce their workforces
because of tariff and quota cuts introduced by the government in 1988, 1991, 2000, 2005 and 2010.
Although some industries have contracted in manufacturing, new industries have been established and
others have expanded, creating new employment opportunities in the services sector. In the 1990s there
was also widespread reform of Public Trading Enterprises through deregulation and privatisation, which
led to an increase in workforce downsizing and the retrenchment of some labour in affected industries.
An important factor that may cause unemployment is the role of wage expectations in pushing up the
price of labour relative to capital. Rapid rises in real wage costs will reduce the demand for labour and
provide employers with the incentive to substitute capital for labour, causing a rise in what is known as
voluntary unemployment or wage induced unemployment. For example, if trade unions have large
bargaining power and win large wage increases, which may be inconsistent with industrys capacity to
pay or productivity levels, businesses may cut wage costs by making some labour redundant.
This is illustrated in Figure 8.4 where the demand for labour (DL) in a competitive labour market is a
negative function of the wage rate and slopes downwards from left to right. The supply of labour (SL)
is a positive function of the wage rate and slopes upwards from left to right. If a minimum award wage
(or Modern Award) of W1 is established above the market equilibrium wage rate of W by wage fixing
tribunals or trade union bargaining power raising wages above equilibrium, unemployment of QL1QL2
will occur since the demand for labour (QL1) is less than the supply of labour (QL2) at wage rate W1.
Australian governments have tried to control wages growth through a system of enterprise wage
bargaining in the labour market. This has led to less reliance by workers on adjustments to the safety
net of the National Minimum Wage and Modern Awards set by the Fair Work Commission and state
industrial tribunals for wage increases. With the introduction of enterprise bargaining in 1991 as a wage
fixing principle, and the spread of enterprise agreements in the labour market in the 1990s and 2000s,
the percentage of workers reliant on arbitrated awards for pay rises fell from 67% of employees in 1990
to around 15.2% by 2013. This has helped to link wage increases to improvements in productivity
that reflect individual enterprise and industry conditions. As a result, employers demand for labour
increased and this is one factor that led to a permanent lowering of unemployment in Australia in the
late 1990s and early to mid 2000s. The Howard governments labour market reforms in the Workplace
Relations Amendment Act (WorkChoices) in 2006 sought to shift more workers away from awards to
individual agreements, arguing that this would stimulate employment and reduce unemployment.
Tim Riley Publications Pty Ltd
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Chapter 8: Unemployment
The labour market is very dynamic with many factors influencing the flow of information between job
seekers and potential employers. A lack of efficiency in the labour market in matching labour skills with
the jobs available can influence the level of frictional unemployment. Rigidities in the labour market
like government regulations (e.g. superannuation, taxation, workers compensation, unfair dismissals
legislation and award conditions) can also reduce the hiring intentions (through higher on costs of
labour) of employers, causing unemployment. Also if workers do not have access to education and
training they will be less skilled and in lower demand by employers for the jobs available. Unemployment
can therefore be caused by high on costs of labour and a lack of skills, education and training.
Successive Australian governments have addressed the issue of improving the education, training and
skills of the labour force by implementing labour market programmes such as Building Australias Future
Workforce (2011), the Job Compact, the Job Network, the National Education Framework and A Plan
for Australian Jobs (2013). The National Training Authority was formed to increase apprenticeships for
young people and an Alternative Pathways Programme established to address skills shortages in 2013.
Inflation %
LF
6%
3%
0%
DL
SL
0
QL
QN
LRPC 1
LRPC
A
C
B
SRPC
6%
5%
NAIRU1 NAIRU
SRPC1
Unemployment %
Q of L
Chapter 8: Unemployment
201
202
Chapter 8: Unemployment
Chapter 8: Unemployment
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204
Chapter 8: Unemployment
These changes further deregulated the industrial relations system, with the government believing that
the new reforms would lead to further gains in employment and productivity, and a reduction in the
unemployment rate because of greater flexibility in wage and employment setting procedures.
With the election of the Rudd Labor government in 2007, the Workplace Relations Amendment
(Transition to Fairness) Act 2008 and the Fair Work Act 2009 were passed to strengthen the safety net of
the workplace relations system. This included the introduction of ten National Employment Standards,
Modern Awards and annual adjustments to the National Minimum Wage by Fair Work Australia.
Emphasis was also placed on collective bargaining, with individual workplace agreements such as
AWAs phased out. The negotiation of enterprise agreements were subject to a Better Off Overall Test
(BOOT) to ensure that workers under enterprise agreements received better than minimum conditions
of employment, and had an incentive to raise productivity to receive higher wages.
Providing greater flexibility for schools to improve the educational outcomes of students. This
included the Digital Education Revolution through the delivery of computers to all Year 9-12
students and the establishment of Trade Training Centres in schools.
Creating a flexible and competitive national vocational training system. This involved expenditure
of $1.9b to deliver up to 630,000 additional training places over five years.
In the 2009-10 budget the government introduced the Jobs and Training Compact at a cost of $1.5b
over five years in response to the rise in the unemployment rate caused by the impact of the Global
Financial Crisis on the Australian labour market. The main measures in the Compact included a Training
Supplement Scheme to eligible job seekers to undertake training; training places for persons under 25
who wanted to upskill; employment assistance to workers who became unemployed; and assistance to
regions and communities directly affected by the global recession.
In the 2011-12 and 2012-13 budgets, the Building Australias Future Workforce package included $3b
of Australian government funding for new skills measures such as apprenticeships, reform of the VET
system, and measures to boost the workforce participation of disadvantaged groups. In the 2013-14
budget the government established a $68m Alternative Pathways Program to address skills shortages.
Year 12 Economics 2014
Chapter 8: Unemployment
In the 2008-09 budget the federal government announced cuts in personal income tax designed to
provide incentives for individuals, including part time workers to participate in the workforce.
In the 2011-12 budget, as part of the Building Australias Future Workforce package, the Australian
government announced measures to encourage participation and incentives in paid work (such as
the Low Income Tax Offset) for disadvantaged groups such as young people, single parents, people
with a disability, the long term unemployed and people in disadvantaged locations.
In the 2012-13 budget, the federal governments Building Australias Future Workforce skills package
contained funding for 50,000 new training places under the National Workforce Development
Fund. A National Partnership Agreement on Skills Reform was also signed with the states to
strengthen the VET system. Funding was allocated to help mature age workers to up-skill and reskill; and for child care assistance to increase parents workforce participation.
In the 2013-14 budget support was given to job seekers in the transition to work through an
increase in the income free area for Newstart Allowance, and funding for child care.
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Chapter 8: Unemployment
A temporary $83m Training Supplement Scheme was introduced to eligible job seekers who
undertake training. This would provide a payment of $41.60 per fortnight to eligible job seekers
on Newstart Allowance or Parenting Payment who undertake approved training;
A $277m Compact with Young Australians which guaranteed an education or training place for
persons under 25 who wanted to upskill or required additional training;
A $438m Compact with Retrenched Workers provided immediate employment assistance through
Job Services Australia to workers who became unemployed. Job Services Australia commenced
operating in 2009 to provide employment services to more disadvantaged job seekers; and
A Compact with Local Communities provided assistance through a $650m Jobs Fund to regions
and communities directly affected by the global recession by funding local job projects.
The governments fiscal and employment stimulus packages were expected to support labour demand
and raise the level of GDP in 2009-10. The stimulus measures were estimated by Treasury to reduce the
forecast peak unemployment rate by 1.5% in 2010 from 10% to 8.5% as shown in Figure 8.7.
Figure 8.7: The Unemployment Rate Pre-Stimulus and Post Stimulus
Chapter 8: Unemployment
REVIEW QUESTIONS
THE TYPES, CAUSES AND EFFECTS OF UNEMPLOYMENT
1. Using examples, distinguish between cyclical, structural, frictional and seasonal unemployment.
2. What is long term unemployment? How does it differ to underemployment and hidden
unemployment? How does the ABS calculate the labour force underutilisation rate?
3. Refer to Figures 8.2 and 8.3 and the text and explain how a deficiency in aggregate demand
can cause cyclical or involuntary unemployment to occur in the economy.
4. Using examples, explain how structural change in the economy can lead to structural
unemployment.
5. Refer to Figure 8.4 and explain how excessive wage expectations might affect unemployment.
6. What is meant by the natural rate of unemployment? Refer to Figure 8.5 and explain how
unemployment can arise in the labour market when labour demand equals labour supply.
7. Refer to Figure 8.6 and explain the Non Accelerating Inflation Rate of Unemployment (NAIRU).
How can the government try to reduce the Non Accelerating Inflation Rate of Unemployment?
8. Discuss the main groups in society affected by high rates of unemployment and long term
unemployment. Why are certain groups more likely to experience unemployment than others?
9. Discuss the economic and social costs of unemployment in the Australian economy.
10. Discuss government policies that can be used to reduce the incidence of cyclical unemployment.
11. Discuss government policies to reduce the incidence of structural and long term unemployment.
12. Discuss the reasons for the skills shortage in Australia and the policies used by the Australian
government to address the skills shortage.
13. Discuss the governments use of the Jobs and Training Compact to address the problem of rising
unemployment due to the impact of the Global Financial Crisis and recession on the Australian
labour market in 2009-10.
14. Define the following terms and add them to a glossary:
apprenticeships
cyclical unemployment
education and training
enterprise bargaining
frictional unemployment
full time employment
hard core unemployment
hidden unemployment
human capital
incidence of unemployment
labour demand
labour force
labour market reform
labour skills
labour underutilisation rate
long term unemployment
LRPC
NAIRU
natural rate of unemployment
net migration
Okuns Law
part time employment
participation rate
poverty trap
productivity
regional unemployment
retrenchments
seasonal unemployment
skills shortage
SRPC
structural change
structural unemployment
tax and welfare reform
underemployment
unemployment
unemployment gap
VET
wage expectations
welfare dependency
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Chapter 8: Unemployment
Full Time
Part Time
Employed
Employed
Persons Persons
3,150,600
Unemployed
Persons
Civilian Population
Aged 15+ years
662,900
17,504,400
Real GDP
%r pa
2008-09
7,611,800
2009-10
2.3
2010-11
8,082,100
3,373,000
591,000
18,370,900
1.9
2011-12
8,065,500
3,435,000
631,300
18,595,500
3.4
2012-13
8,139,900
3,520,100
706,900
18,976,200
3.0
Refer to the table above of selected data for the Australian labour force between 2008-09
and 2012-13 and answer the questions below.
1.3
Marks
(1)
2.
(1)
3. Calculate the change in the unemployment rate between 2011-12 and 2012-13.
(2)
(2)
5.
(4)
Chapter 8: Unemployment
Unlike most advanced economies, the Australian labour market was remarkably resilient during the
Global Financial Crisis (GFC), and following a short period of weakness, has since strengthened.
Over the past 18 months employment has grown strongly, the unemployment rate has fallen
steadily, and the participation rate has reached record highs. The long term unemployment rate
also remains low and continues to decline.
In the lead up to and during the GFC the unemployment rate rose by a total of around 1.6% from
4.2% to 5.8% in Australia, compared with around a 2.75% rise in Canada, a 3.5% rise in New
Zealand and a 5.75% rise in the USA. Not only was the increase in Australias unemployment
rate relatively modest, but the subsequent recovery has been substantial with the unemployment
rate falling to 4.9% as at March 2011, lower than most of the major advanced economies.
Unemployment Rates
Employment Growth
Explain recent trends in Australias unemployment rate and the relationship between changes in
economic growth, employment and the unemployment rate.
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Chapter 8: Unemployment
CHAPTER SUMMARY
UNEMPLOYMENT
1. Full employment of the labour force is a major goal of government economic policy.
2. The labour force consists of all persons employed (i.e. both full time and part time employees) plus
unemployed persons registered as actively seeking and available for work.
3. According to the Australian Bureau of Statistics (ABS), persons over 15 years who are currently
employed for at least one hour per week, plus self employed persons and those unemployed but
actively seeking work are included in the Australian labour force.
4. The size of the labour force is determined by factors such as the size and growth of the population;
the age distribution of the population; and the participation rate of the working age population.
5. The unemployment rate is calculated as the percentage of the total labour force classified as
unemployed. In 2012-13 the unemployment rate in Australia was 5.7% of the labour force.
6. The unemployment rate peaked in the recession of the early 1990s when it was 11% of the labour
force. It fell from 11% in 1992 to an historic low of 4.2% in 2007-08, before rising to 5.8% in
2008-09 due to the impact of the Global Financial Crisis and recession.
Unemployment rates tend to be higher for young people 15 to 19 years because they may
lack the education, training and experience required by employers compared to older workers.
Unemployment rates tend to be lower in mining states such as Queensland and Western Australia
compared to states such as NSW and Victoria with lower levels of mining activity.
7. The main types of unemployment are classified as cyclical, structural, frictional, seasonal,
underemployment, long term, hidden and regional.
8. Some of the main causes of unemployment include the following:
Structural changes in production and technology may make some labour redundant because of
a mismatch between the labour skills demanded and the skills supplied by the labour force; and
Excessive wage expectations may lead to rising wage costs for employers and a lower demand
for labour, causing employers to substitute capital for labour in production.
9. The natural rate of unemployment is where some workers remain unemployed due to frictional
and structural factors in the labour market, eventhough the demand and supply of labour are in
equilibrium in the labour market. The Non Accelerating Inflation Rate of Unemployment (NAIRU)
is the rate of unemployment that is consistent with a constant or non accelerating inflation rate.
10. Some of the main groups affected by unemployment include young people; workers with low levels
of education, skills and training; blue collar workers in manufacturing; migrants from non English
speaking backgrounds; and Aborigines and Torres Strait Islanders.
11. The economic effects of unemployment include the opportunity cost of lost output and income of the
unemployed and a depreciation of human capital as labour skills are lost. The unemployed also
suffer from lower incomes and a loss of self esteem the longer they are unemployed. Other costs
may include an increased tax burden on the employed to fund unemployment benefits and a rise
in cyclical expenditure by the government on welfare payments to the unemployed.
12. Unemployment also results in social costs to the community as the unemployed may experience
health problems; alcohol or drug dependency; and a breakdown in their family relationships.
Unemployment has also been linked to rising crime rates and anti-social behaviour by the
unemployed as they may become marginalised and detached from mainstream society.