Cyclical And Structural Unemployment Management In Australia

Types of Unemployment

Discuss about the Cyclical and Structural Unemployment Management.

In introduction, it can be said that, unemployment shows a country’s macroeconomic situation and durability. Unemployment is considered as one of the major macroeconomic variables of an economy. it shows poverty and income inequality of an economy. Those people are considered as unemployed who are looking for jobs but are not absorbed by the production process of the economy. The common measure of measuring unemployment in a country is the unemployment rate. It is a percentage of the ratio of unemployed people of the country and its total working population. During a recession, an economy witnesses high rate of unemployment. The present economic situation in Australia shows a different story of unemployment compared to its previous records. The present unemployment fall in Australia is the effect of the mining boom in the country. The mining boom is not a safe option for increasing employment, as it is not sustaining. Once the mining wells dry up, the boom will be gone leaving the economy in a stagnation or recession.

The purpose of this essay is to provide a brief overview of the unemployment situation in the Australian economy in various states. The economy has shown huge changes in its production process. The technological changes in the country’s economy have led to strong economic transformations, which increased the requirement of skilled labour in the country. It reduced the demand for unskilled labour. So, employment reduction at one front got somewhat compensated by the increasing employment at another front. According to Hobson (2013), long-term unemployment causes economic disputes in an economy. It thus requires the attention of the country’s government and the authorities, which can help the economy to avoid this unemployment threats. The essay focuses on how each states of Australia like WA, Tasmania, SA, Qld, and NSW takes different policy measures to address the issues regarding unemployment. 

As stated by Nymoen and Sparrman (2015), an economy faces various types of unemployment among which, the cyclical unemployment is the most common. It depends wholly on business cycle of the economy. A country facing a period of boom will generate more employment opportunities and hence will show low unemployment rate. On the other hand, a country’s economy facing recession will create less job opportunities, increasing the unemployment rate. During recession, the demand for labour becomes lesser than the supply of the same. Following the views of Diamond (2013), the hint of cyclical unemployment can be gathered when the economy starts contracting. Once the economy gets out of the recession and starts improving, the unemployed people again gets absorbed by the production process.

Cyclical Unemployment

Another major unemployment type is the structural unemployment. It occurs when the skill set offered by the employees does not match with the skill set demanded by the employers. This type of unemployment can be caused due to technological changes, globalization, and others. Due to globalization, the domestic and international markets start acting like one. The demand pattern of certain goods changes during globalization, which changes the labour and their skill set requirements. It results in structural unemployment. Again, technological changes can cause structural unemployment. As stated by Harvey (2016), a disruptive technology that stops the usage of previous technology of production will cause a massive demand for new skills for production. It takes time for the employees to get accustomed to the new technology, if they have time. Otherwise, this type of unemployment can last for a long period. It requires government intervention to reduce structural unemployment. In Australia, he coal miners of South Wales got unemployed in a massive scale, which lead to regional unemployment.

Frictional unemployment is another type of unemployment, which can occur in an economy. This type of unemployment occurs when the employees have left the previous job and is in search for another job. According to Milner, Page and LaMontagne (2013), the duration between the transitions of the employee is counted as an reason of unemployment. Frictional unemployment is the least harmful type of unemployment and it gets over quickly. Individuals’ valuation of the jobs determines the frictional unemployment and its duration. It also states that an economy will never witness full employment, as there will always be some people, who are in the procedure of changing jobs. An economy facing demand deficiency will also witness unemployment and it will result in loss of Gross Domestic Product and price. The situation is shown in the figure below:

As shown in the figure above, the lack of aggregate demand shifts the demand curve backwards from AD to AD1. It results in price reduction from P toP1. The fall in demand also decreases the country’s Gross Domestic Product from Y to Y1. According to Thirlwall (2015), the fall in output level is followed by an increase in the unemployment rate. It has the potential of reducing the employment rate in the long run. The long pause from the work can make the employees de-skilled and de-motivated. It makes finding job in the future difficult. Hence, any kind of unemployment staying for a long period will result in a diminishing productivity.

Structural Unemployment

As stated by Sharma, Oczkowski and Hicks (2016), unemployment can be divided into two categories namely voluntary unemployment and involuntary unemployment. In the case of involuntary unemployment, the production process is not absorbing people who want to work at the existing wage rate. The reason behind this situation is the lack of demand in the economy, which causes excess supply of labour. In the case of voluntary unemployment, people who are able to work chose not to at the wage rate present in the economy. These people are thus not considered in the labour force of the economy.

The definition of unemployment that is followed in Australia is the standard gold definition of unemployment. It states that if a person in the country does not work for one hour per week, the person will be considered as unemployed. According to Kler, Leeves and Shankar (2015), the Australian economy consists of stronger labour market circumstance, weaker labour market circumstance, and the ideal labour market circumstance. Unemployment in Australia is mostly caused by weaker labour market circumstance. It happens when the households supply more labour than the labour demand in the existing market. It is characterized by high level of unemployment rate, diminishing employment growth, reduction in vacancies of jobs, and increasing unemployment duration. The common unemployment type prevailing in the Australian economy is the cyclical unemployment.

As the figure above shows, the unemployment rate was high during the early 1990s. It led to recession in the country. According to Gregory and Smith (2016), the unemployment rate then fell gradually before the Global Financial Crisis hit the world economy. As the after effect of the Global Financial Crisis, the unemployment rate stopped moving downwards and started going upwards since then. The unemployment rate of the country is connected to its present and future interest rates and economic growth. According to Lloyd and Ramsay (2015), long-term unemployment has created several economic as well as social problems in the country. Increasing rate of unemployment reduces the social welfare the country. The cost generated by the unemployed people is considered as the dead weight loss of the society. The unemployment benefits given by the Australian government yields no gain for the economy. The common effect of long term unemployment witnessed by the Australian economy is the deterioration of skills. Moreover, unemployment in the country is not uniformly distributed across the workforce. The Australian employment scenario changed since the mining boom faced by the country. It injected investments in the production process, which increased the supply of goods and commodities to the increased demand. This increase in supply was possible due to the increase in employment rate of the country. The production process of the country absorbed a huge portion of the unemployed population of the country. This process has kept the increasing unemployment rate of Australia arrested. Many economists have showed their concern over the matter. According to them, the natural resources are scarce in nature, and hence it will end someday. As stated by Morris and Wilson (2014), after the boom fades out from the economy, those people who were incorporated in the labour force and had job related to the mining, will lose their jobs and face structural unemployment at first. The producers will not require the skill set the workers have. However, these people will get time to get involved in the production process, until then they will be in a transition period, which is the frictional unemployment. The mining boom vanishing away from the Australian economy will make the economy unstable at the beginning. This might result in a recession. According to Mavromaras, Sloane and Wei (2015), the recession will in turn cause cyclical unemployment. Government intervention is needed here to stop the economy from falling in a recession. The government of Australia also has the task of controlling the economy’s unemployment rate. For this purpose the government can take several measures. The government can increase the federal expenditure by taking a monetary or a fiscal policy measure. It will help the production process keeping a stable outcome. It will keep the employment rate stable as a result. According to Carraro and Siniscalco (2013), the government can also control the wage rate in the economy. The mining boom in the country had increased the wage rate. The high wage rate is also responsible for the high unemployment rate in the country. The percentage of part time workers in the country has increased rapidly over the past few years. It shows the labour market in the country is flexible. It helps the workers to choose the hours and places of work. This process works individually. It also reflects an imperative structural change in the country’s labour market. The role of the government here is to ensure that the wages are fixed at such a level, that the wage flow to the other parts of the economy becomes more fluent. In those sectors, where labour demand is less will also witness the same effect.

Frictional Unemployment

According to Considine, O’Sullivan and Nguyen (2014), the immigration program of Australia mainly operates actively. The immigration process of the country incorporates three components. The workers, who are skilled, are dealt with in the first component of immigration. According to Makin and Pearce (2016), these people are absorbed in the production process fast. It also incorporates a large number of people who are from non-English speaking background. The major sates of the country has shown high rate of unemployment as shown in the table below:

Labor Force Region	The Rate of Unemployment (%)
Western Australia	5.5
New South Wales (NSW)	5.3
Australia Capital Territory	3.4
Victoria	5.7
Northern Territory	4.5
Queensland	6.2
Tasmania	7.3

Table 1: Unemployment rate in different major Australian states.

Source: As created by the author.

The ABS has stated in their report that the unemployment rates though are showing high magnitudes, are in reality decreasing. New South Wales has witnessed a fall in unemployment from -0.1 percent to 5.9 percent. Tasmania has shown a fall from -0.4 percent to 6 percent. In Queensland, the unemployment rate fell from -0.1 percent to 6.3 percent. South Australia has witnessed a fall in unemployment rate from -0.2 percent to 7.7 percent. Western Australia’s unemployment rate was steady at its previous position of 6.1 percent, whereas, Victoria has witnessed an edge up in the unemployment rate from 0.1 percent to 6.2 percent. The fall in unemployment rate was balanced by another state, which kept the country’s unemployment rate steady at 6.2 percent. It is better than the previous percentage of 6.3 percent. The reason behind sticking to this rate is the fall in labour force participation rate to 64.9 percent. Those states, which had witnessed the mining boom closely, enjoyed a low unemployment rate for a moderately long period. Western Australia back then had the lowest unemployment rate in the country of 3.9 percent. Queensland and South Australia also had their unemployment rates below percent. Ironically, the present state with the lowest unemployment rate, New South Wales showed highest unemployment rate at that period with 5.3 percent.

The state Tasmania has shown 7.3 percent unemployment rate in the year 2015, same as its previous year. It was higher than the then average unemployment rate of the country. at that time, the unemployment rate in Australia was 5.1 percent. The lowest unemployment rate showed at that period was by Australia Capital Territory at 3.4 percent. It represented a healthy labour market. The total of unemployment and under-employment in New South Wales was 15.2 percent at that time. As stated by the Australian Bureau of Statistics, the rate of unemployment in the country was stable at 5.7 percent. Approximately 17,900 jobs were created which helped the economy to keep the unemployment rate low. Tasmania had shown approximately 153,800 full time workers were employed in the state two years back. Presently, the number has gone down rapidly to 143, 800. It shows a gap of almost 10,000 jobs in the economy.

Unemployment in Australia

The authorities related to the country’s employment have prescribed the government that Australia needs at least 20,000 new jobs. This can keep the economy at a stable state and the unemployment rate unchanged. The country has witnessed an increase in the part time jobs. It has been stated by the Australian Bureau of Statistics that the reason of the unemployment rate is workers’ dissatisfaction and giving up tendency of the full time jobs. According to Carvalho (2015), the recent data states that 232,000 people were newly incorporated in the employed list in Tasmania during 2013. In 2014 the number decreased by 200 to 232,000. In the year 2016, the unemployment rate in Victoria increased to 5.8 percent. Western Australia has also showed a same trend. It increased to 5.7 percent.

States	Unemployment rate
New South Wales	5.2
Victoria	5.8
South Australia	6.9
Tasmania	6.5
Australia Capital Territory	3.8
Queensland	6.4
Western Australia	5.7

Table 2: State unemployment data until April 2016.

Source: As created by the author.

As stated before, maintaining a socio economic condition throughout the country requires big initiatives from the government. The government has the power of reducing unemployment in the economy and increasing employment, in all the states. For this purpose, the government has to take fiscal and monetary policies, which can be divided into macroeconomic and microeconomic strategies. According to Weiss (2014), the macroeconomic strategies will deal with the overall economy and its performance, while the microeconomic strategies will be addressed to the individual economic agents operating in different states of the country. It will also consider the private investments, which in turn will increase the private sector jobs. The policies given by the government so far can reduce business cost for the companies operating presently in the economy. The government of Australia has forecasted budget surplus in the previous year, which will be used to create jobs in the country. The government also requires addressing the issues regarding increasing productivity of the workers. This process will also help the authorities in different states increasing the labour force participation. The financial worth over time will be guided by the macroeconomic policies.

According to Galí (2015), demand management tool, can be used by the government are the monetary policy acts. These acts will take support from the automatic fiscal stabilizers. The central government has witnessed that it creates more result if the state authorities take the employment strategies. Different states take different measures while focusing on the same goal of reduction of unemployment rate. The state governments of Western Australia, New South Wales, and Australia Central Territories follow a low minimum wage policy. It helps the states in increasing the employment rate. This process works by helping the employers to employ more people and reduce unemployment in the state. According to Quercia, Pennington-Cross and Tian (2014), this wage is kept stable by the state governments. Other states like Queensland, Tasmania, Victoria, and South Australia focus on reducing the wage rate continuously. It keeps increasing employment. The Commonwealth and State government of Australia have taken fiscal policy measures to stabilize the government revenues, which will be used to increase the employment in the country. To motivate those who are out of job for a long period, the government gives the unemployed persons benefits. The Australian government also invites investments from abroad. Australia being a globalized economy has the opportunity of availing foreign domestic investments, which can increase the country’s employment rate rapidly.

Long-Term Unemployment in Australia

In conclusion, it can be said that the short run efforts by the state governments of Australia are mainly focusing on reducing the wage rate. The main purpose of this policy is to give the employers the opportunity of reducing the cost of production and employ more workers. The short run policies by the state governments are not the answer for long run unemployment rate issues. To make the unemployment rate low and stable in the long run, the government has to look for training programs and education. It will create the skill set which the present production process and the employers require. This way the authorities will answer both frictional and structural unemployment problems. It will lower the unemployment rate permanently. The workers of Australia are looking more for part time jobs than full time jobs. The mining boom in the country has also played a crucial role in decreasing the unemployment rate in those states, which are affected by the results of the mining boom. The country is currently facing 5.7 percent unemployment rate. Different states in the country took different policy measures for unemployment. The Northern Territory in the country is presently showing the least unemployment rate of 4.9 percent.

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