Rising Unemployment Rate In Australia: Causes, Types And Analysis

Definition and Causes of Unemployment

Rising unemployment rate has been a major policy concern in Australia for the past 5 years. There are very many factor that have contributed to this rise and the government is struggling to contain this situation. The Australian economic performance has been poor; high rate of unemployment indicates that economic health is poor since the economy is not able to provide jobs to many whereas there is still potential for higher production. It can argued that this is irrespective of this economy being able to escape the impacted of the 2008-09 global recession. This paper shall analyze the unemployment issue in Australia for these 5 years. Data will be collected from the World Bank data indicators. In this paper, the differences that results in unemployment rate differences between various aspects will be covered. For instance it will cover the differences in the Australian states, the differences based on sex group; where it will be determined whether it’s the males or the females that are mostly impacted by the rising unemployment rate. Also, it will determine the age groups that are mostly faced with this problem.

This paper will explain the many factors argued by economists to be responsible for increasing the rate of unemployment. In order to critically analyze the issue, the paper shall consider the difference unemployment types and the characteristics of each and an example shall be provided.  Further, the paper shall also note the various policy actions that the government has implemented in order to ensure that there is increased employment rate in the economy which would in turn lower the unemployment rate. It will also determine whether these policies are effective and additional policy actions will be recommended. This paper will be important to the government’s policy makers, economists and everybody else who may be interested in understanding the facts of unemployment in Australia.

The definitional of unemployment is globally agreed with almost similar characteristics. The Australian government defines unemployment as an economic situation where many people have not jobs whereas they are actively looking for them; it is the proportion of the unemployed compared to the whole labour force. Delalande (2016) noted that in Australia a person has to be 15 years and above in order to qualify to participate in the labour force. An unemployed person in this case is defined as that person who is without a job, is actively seeking for it, can accept and is ready for any job offered (Cassells, 2017).

Labour unions are an important factor in contributing to unemployment rate. These groups do not consider the economic impacts of increasing wages but are rather interested in just a particular group in an economy. Sometimes they demand wage increments at a very high rate. At very high wage rate, labour demand falls since wage rate is the price in the labour market. Labour being a normal good, its demand falls when the wage rates are high and increases when wage rates are lower.

At the equilibrium wage rate W, Q number of workers are demanded and supplied. The labour unions always insert pressure for a rate increase; so assuming the rate is increased to Union wages, the demand for labour falls to Q1. When wage rates are high, more people are interested in joining the labour force and thus supply increases to Q2; this raises the level of unemployment. The government intervention policies which involve the imposition of a wage floor (minimum wage) is also a factor that causes unemployment and has the same impact as that of high wages demanded by labour unions. The government sets a price floor above the initial equilibrium wage (a higher wage level)

Statistical Analysis

Another cause is the rising Australian cost of production. Elaine (2017) noted that the manufacturing industry has suffered from the costs increments. This has caused some of the industries to halt their operations whereas some have opted to shift operations from Australia to overseas. This has resulted in loss of jobs. According to Gahan (2014) there has been a loss of more than 100,000 jobs from this industry. There is a high chance that production costs will raise the unemployment rate in some years to come. For instance, Hawthorne (2015) pointed out that it’s driving the car manufacturing industries out of business. The number of people directly employed in this industry is approximately 8000, and those employed in service companies and the support manufacturers is approximately 40,000. The closure would greatly add to the current unemployment rate (Valadkhani, 2016). Another factor according to Perpitch (2016) is the mining end of the miming boom. He argued that the government should have noted that every boom is followed by a lean season and thus should have avoided the catastrophe by putting in place policies that would help save some finances for the lean season.

Table: Unemployment rate in Australia 2012-2016

Year	2012	2013	2014	2015	2016
data	5.22	5.66	6.07	6.06	5.72

Source: Databank.worldbank.org (2017)

Graph: Unemployment Rate 2012-2016

For the past 5 years analyzed, 2012 had the lowest rate with the highest rate reached in 2014 and 2015. The positive trend line is used to help understand the direction of the unemployment rate which on this case is going up. In the graph, the year 2016 can be said to have improved in terms of unemployment rate since compared to 2014 and 2015 a lower record was made.

The unemployment that is present in Australia is of the same form as all other economies. It is categorized into four with structural, frictional and cyclical being the major types. The other category is the seasonal unemployment. All these categories cannot be avoided in every economy whether developed or developing. All of them are present in the short run but cyclical and structural unemployment are also experienced in the long run. Most economist argue for the government to intervene mostly on the structural and cyclical unemployment since there are unsafe to the economy. Those that are experienced and end in the short run are of less importance to the policy makers. There are many factors that explain the differences between all these categories and they are explained hen analyzing each of the categories below.

Advances in technology resulting from world globalization has been argued to change the structural nature of businesses. Unemployment results because the adjustment of workers to the changing structure may take time; they are all of a sudden required to possess certain skills. The acquisition of skills takes time and thus since the firms operations cannot be halted, those without the skills are laid off. This form is considered to be most important for policy makers since there could be plenty of jobs whereas those seeking employment possess different skills from what is required or rather some have no skills. Nash (2017) argued that this type of unemployment is also as a result of businesses finding lower labour costs overseas. This makes these firms to cease their operation in the high labour cost area and move to that with a lower cost. Unemployment results because most of the workers initially employed will lose their job as the firm won’t be able to facilitate the immigration of the workers overseas; it would be cheaper to go employ from the new area. Those left without the job enters the job labour market to look for a job.

Unemployment Types

It occurs because workers take time to find new jobs when there is normal labour market turnover. Most workers are not satisfied with their current job and thus there is a constant change of jobs all year long. After changing a job it becomes difficult for them to match with the potential employees. Nash (2017) argued that this type of unemployment may occur even when there is sufficient jobs for all the unemployed since the unemployed may take time to learn of the job openings, for acceptance of application, interviewing and hiring. A graduate who just leaves college may take months or years before landing into a job and is considered frictionally unemployed during the search period.

There are many ups and downs experienced in an economy. The economy is known to operate in cycles. There are cycles when it’s doing well and others poorly. It is these cycles that results in unemployment. Sawe (2016) noted that weak cycle’s labour demands have slowed the growth of employment compared to increase in labour supply. When an economy enters into a recession (poor performance) there is a loss of many jobs and are referred to as cyclical unemployment. I for instance a consideration is done on the of the great depression on unemployment rate, it can be noted that there was a great surge of up to 25 %, meaning that for every four people there was an unemployed person.

There are many sectors whose operations are not continuous throughout the year. During the periods when the operations are paused, then there is no labour demand for the same and this causes the workers in that industry to remain unemployed for some time awaiting the next operation to be reached. An example is the reduction of workers on beach resorts during winter and ski resorts during summer (Hubbard et al., 2014).

Many economic sources have noted that the number of the underemployed persons in Australia is very high (Scutt, 2016). Workers are receiving too little compensation and are in need for bigger salaries. However, this issue is disregarded in Australia; the policy makers’ main concern is the unemployed whereas the underemployed are taken to at least having a job. The estimation of unemployment rate in Australia doesn’t give a true figure of those who are employed. The argument for this is so many people do not meet the criteria of a person considered to be unemployed and thus excluded from the estimation. For instance there are some people with inadequate skills, some physically challenge and others discouraged from job seeking. Some of these groups may not be able to compete for jobs and thus are actively not seeking for one but if given a job they would do it; the discourage have search for a job for long and have lost hope and thus inactive in job searching.

In Australia, the youths and the aged are the largest group struggling with the unemployment problem.

The percentage of youth unemployed of the total labour force in Australia has been going up for the 5 past years. It is exhibiting the same behavior as the national unemployment rate. Scutt (2016) pointed out that the Australian youth unemployment rate is on the rise.

Structural Unemployment

Table: Level of unemployment in Australian States

State/Territory	Unemployment Rate (%)
Northern Territory	3.5
Australian Capital Territory	3.7
New South Wales	5.1
Tasmania	6
Victoria	6.1
Queensland	6.3
Western Australia	6.5
South Australia	7

Source: Lmip.gov.au (2017)

The Australian states have different rates of unemployment. There is no two states that have the same level of unemployment. The Northern Territories unemployment rate is the lowest. According to Cassells ((2017), the trend estimates confirms that South Australia is greatly faced by the unemployment problem followed by Western Australia. The graph is drawn from the unemployment data for 2017 collected from Lmip.gov.au. It is drawn in an ascending order (the state with the lowest to the highest unemployment rate)

The Australian government is struggling to improve its labour market through various policies. Since the economy has a high potential for growth, the government is aiming at increasing economic productivity so as to create millions of jobs (Sawe, 2016). The private sector have been realized to driving economic growth and thus creating employment, thus the government is targeting policies that would create more opportunities for this sector which include easing of trading restrictions such that it is cheaper to participate in the global markets. Another policy would include direct reduction of the labour supply where the government increases the minimum age for a person to join the labour force. This should also be accompanied by lowering the retirement age.

There are supply-side and demand-side policies aimed at creating more employment. The government is aiming to lower the production costs which in turn would leave firms with more money to employ more labour. The demand-side policies is when the government use expansionary monetary and fiscal policies to stimulate aggregate demand. The monetary policies are most recommended as they are fast compared to the time lag for the fiscal policies (Amadeo, 2017). With more demand, there will be a need to produce more and this calls for additional workforce. Another policy is the reduction of real wages by the government which involves a downward revision of minimum wages and a cut in unemployment benefits (Gallego, 2017). With a lower wage, firms are able to increase the workforce. Amadeo (2017) argued that the best policy for solving the unemployment problem is by increasing the unemployment benefits since it greatly increase the aggregate demand since the unemployed spends up to the last coin of the benefit received. Cutting of income tax could still also have the same impact on aggregate demand.

Most importantly, the major government concern should be on the issue of the pressure the labour unions cause on the wage levels. One thing to be noted is that the government is the sole regulator of the economy’s unemployment rate. It cannot be able to do this effectively with the existence of labour union pressures. The government could be able to provide true values of unemployment rate only by first solving the challenges that keeps some of those without jobs away from the labour force. The government can solve the problem of structural unemployment by establishing schools that provide skills to the youths and elder people who lack skills at a lower cost. This could help in ensuring that even if unemployed, there is a high probability that a job demanding the held skills may arise. The government should use the different economic indicators to predict the future trends of the unemployment rate instead of using the historical data. This is because it will be able to initiate policies that would help control the future changes. For instance if it considers the fact that production costs is driving firms out of business, it would consider either raising its spending to subsidize the manufacturing firms or cutting taxes for these firms. This would help in boosting their operations.

Frictional Unemployment

Conclusion

Understanding the causes of the rising unemployment is the first step in solving the problem. There are so many causes of which policy makers haven’t yet implemented policies upon. The unions should be regulated by the government since their aim is not to optimize social benefits. Since wages are always sticky such that workers will never agree to have their wages cut so as to regulate the labor market, the labour unions may lead to a permanent unemployment problem. In the Australian economy, there are many challenges that prevents those without jobs to qualify as being unemployed. This makes the government to provided unemployment figures that are attractive whereas this is not the case. If all those without a job were to participate in the labour force, the Australian rate of unemployment would be very high. Lower unemployment rate does not mean that the Australian economy is offering employment to a high proportion of its population. The problem of unemployment is so critical in Australia, there are so many people without skills that could lead to employment and thus they lack the hope of getting a job. The problem of unemployment cannot be healed automatically by forces of supply and demand, thus the government intervention plays an important role. The low performance of the Australian manufacturing sector is responsible for increased unemployment rate.

References

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