Unemployment Rate In Australia For Labor Resource: Causes, Types, And Issues

Causes of Unemployment in Australia

Discuss about the Unemployment Rate in Australia for Labor Resource.

Unemployment is an indicator of inefficient use of labor resource. Unemployment is the economic conditions where people are without jobs and are seeking employment. As noted by Buultjens (2005), the Australian economy is faced with three major issues; the economic growth, the unemployment, and the inflation rate. The level of unemployment is dependent on the rate of economic growth in any given economy. At high economic growth rate, the unemployment rate falls. It rises when a country is recorded to be performing poorly. This performance is measured in terms of the changes in GDP. The Australian economy has performed poorly in employment terms in the past few years; the unemployment level is on a rise and projected to be higher in the future. This paper will consider the various government policies implemented towards the promotion of the recovery. The recovery is crucial in that; unemployment tends to fix some people at poverty traps. Economic hardships are experienced more by those who are unemployed for a long-term compared to the short term.

Unemployment is a big problem to the society in large. Some people may assume that it only affects those that are unemployed but this is not the case. There are many things that unemployed people can do which may have negative impacts on the society. Some of the bad effects include; theft, drug abuse, poor health, reduced literacy level, etc. Mukherjee and Graycar (1997) argued that the increase in unemployment rate raises the possibility of committing crimes. For the most effective policies to be implemented, all the factors responsible for the increments in unemployment should be considered. This paper shall also consider the differences in unemployment across the Australian states. Factors behind the differences will be deducted. Conclusions will be drawn.

The shortage in aggregate demand results in a reduction in the output production. When this happens as is in the case during a recession, most employees gets retrenched. These people may not get their jobs even after the recovery takes place; this is because the expansion of productivity happens in the recession. The depression of demand, therefore, causes an increased unemployment.

Unemployment is increased by the cost of labour being very high compared to capital. In Australia, the real wages are argued to be very high. This has created an incentive for the producers to shift to capital rather than employing labour. An increased labour productivity also accelerates unemployment. It is assumed that with an increased labour productivity, fewer number of workers can meet the same level of demand.

Unemployment Rate

The new technology advancements are lowering the demand for labour. The already existing companies are barely offering an employment opportunity. Very few opportunities are offered in the newly established companies. There is a huge number of immigrants into Australia; these people add to its workforce, therefore, contributing to an increase in unemployment rate. The Australian economy is export-based. A reduction in the demand for exports has a great impact on its international trade which results in a reduced foreign earning subsequently raising the level of unemployment.

The Australian labour force is made up of all those people who are 15 years and above. The maximum limit for Australian employment is 65 years.

The analyzed data from Tradingeconomics.com shows that initially the unemployment rate was lower.it rose steadily from 2011 and stood at its highest level in 2015 (Farrer, 2015). It is in the same year when it started falling. In 2016, it started fluctuating across the quarters. The trend is positively sloping; a proof that it has moved from low to high across the past five years. According to Janda (2016), the increased unemployment rate is due to the increased participation rate.

The tradingeconomics.com provides a forecast of the Australian unemployment rate for the period 2016-2020 as shown in the graph below.  

Fig: Australian unemployment rate forecast

The projection is that this rate will stand at 5.8 % by the time we get to the end of this quarter. In the year 2017, the projected rate is 6.0 %. Further, the projection for 2020 shows that there will be ab increased unemployment rate standing at around 6.2 % (Tradingeconomics.com, 2016).

There are several types of unemployment in Australia and any other world economy. Economists classify unemployment by its causes. There are four major types of unemployment. While some are short-term, the others continue to the long term and in the extreme cases may take very many years for some workers to get a job. Workers who have been unemployed for over a year are considered to be long-term unemployed (Fowkes, 2011).The short-term employment is not considered harmful to the economy.

One of them is the frictional unemployment. This form arises from the inadequacy of perfect information on the labor market. The time it takes for workers seeking employment to match up with employers in demand for labour takes a significant amount of time. Employers need workers who meet all their requirements and have some extra added advantages. It is difficult for workers to proof satisfactory for the job position. Productivity is the major objective that determines the applicant chosen for the available position. The worker has to proof to be more productive for he/she to win that position. The whole matching up process takes time. The labour markets can, therefore, be said to be imperfect in terms of information failure. A job position may be under advertisement, but some of those seeking employment are not able to act quickly to such information. The reason for this may be geographical barriers nd those of cost. These people will get employed with time.But while they are still looking for the job, they are considered to be frictionally unemployed.

Types of Unemployment

The other type is the cyclical unemployment which arises with the changes in economy’s growth rate. An economy experiences different economic states in its operations. It is said to be in a boom state when the economic performance is high. During this state, the unemployment rate falls. The other state is the recession state when the economy’s performance is very poor. During this period, the rate of unemployment rises. A  recession is associated with low inflation rates. This mean that the price of goods and services are low in this state. Since suppliers willingness to supply is reduced when prices are low, they lay off some workers. Less production takes place, and since the prices are poor, less revenues are raised. Comparing this to the production costs, firms are forced to lay off some workers.This worker might regain their job positions once the economy recovers. Before the recovery, these workers are said to be cyclically unemployed.

The third type is the structural unemployment which arises because the workers seeking employment cannot fit into the available jobs. There is rigidity in the transfer of skills from one sector to the other. If a worker loses a job, sometimes it becomes so difficult to get another one. Always there are jobs available in the economy, but not every job seeker qualifies to fill these positions. One may have strong jobs skills in one sector, but when you consider utilizing the skills in some other sector, it becomes useless. According to Fowkes (2011), some people may remain unemployed even when there are plenty of jobs. The structure of the business has also contributed to structural unemployment. Globalization of the world economies has resulted in improved technological innovations; the business operations are carried out with new technology. Some of the initially employed workers fail to possess the desirable skills to adapt to the changing technology; they end up being laid off the job.

The last type to be considered in this paper is the seasonal unemployment which occurs because some workers depend on seasonal jobs for employment. These jobs include mainly farm operations. For instance, in the cultivation of a certain plant species, there are many stages where labor is required. E.g. Digging during planting, the next is a weeding period, and lastly the harvesting period. Some workers are only employed when these stages are reached at. There exist a time difference between the stages; the workers have no job to do during this time. They are therefore referred to as seasonally unemployed. 

Issues of Unemployment

Fig: Seasonally adjusted unemployment rate

                          Fig (a)                                                  Fig (b)

Source: 6202.0 – Labour Force, Australia, Aug 2016

The figure above shows that the trend of the unemployment rate is negatively sloped. This mean that the rate is falling. As it can be observed, the increments in the employment rate is contributing to the fall in the unemployment rate (Abs.gov.au, 2016). There is a rising trend of employment rate in Australia when the performance for the past two years is considered.

One of the issues is the many years that is taken before the old employees retires. Retirement creates more job vacancies. When the retirement age is very high, the job opportunities take so long before they are created. The youths, therefore, face some long periods of unemployment before they finally get employed. Buultjens (2005) recommended that workers should retire an early age. The unemployment problem is faced by different age groups in the society; the largest group is that of 15-19 years. The 20s, 30, 40s and 50s group are not much affected. The next largest group is the 60s since they are rejected at workplaces. They are considered less productive, and hence employers cannot employ them.

The other is the school retention rate. The students who remain in school after 15 years are low in number sometimes. When these students are out of school, the immediately start seeking employment. The government has made attempts to raise the retention rate so as to lower the participation rate. A high school retention rate is good for an economy.

The issue of rigidity in the transfer of skills from one sector to another contradicts the definition of unemployed person as given by the Australian government. This is at that point where it notes that the person seeking a job must also be ready to grab any work opportunity that arises. It ignored the problem of skills held when giving out this definition. It should have noted that the job seeker must be ready to grab any job opportunity which matches the skills held.

The other issue is the problem of underemployed. The criteria for defining the unemployed person seem to have been under many assumptions. The consideration of a person working for only two hours a week to be employed is irrelevant. Considering the hourly wage payments, a person who works only for two hours a week is similar to the unemployed one. At very low wage rates, a worker may or may not even be able to merely meet the basic needs. These workers are only earning a very little salary to keep life going. These workers are not willing to work for the reduced hours, or their current employment is underutilizing his/her skills.

Still on the definition of unemployed person criteria. The participation in the labor force is also questionable. A worker who is not participating in the labor force is not considered unemployed. If the person is not actively seeking a job, they are excluded from the unemployed persons. Some workers have no jobs, are not actively seeking, but they are in need of employment. Consider the workers who had been actively seeking employment for a very long time without success. These workers get discouraged from seeking the jobs further. Excluding them from the calculation of unemployed persons is being unjust to them.

The other issue is that of hardcore unemployment. These are people who are unemployed and cannot be employed because they are unacceptable or unsuitable for employment. For instance, those who are mentally challenged and the alcoholics. This is another group which is ignored in the calculation of unemployment rate.

Lastly, most of the workers do part time jobs and always wish to get full-time jobs. During periods of the very high unemployment rate, the number of people participating in the labour force falls (this is especially observed in the married women). Student’s retention rate in schools rises and their willingness to take higher education is raised.

One of the policies implemented by the Australian government is that of minimum wage legislation. This policy has been questioned over the years by many economists. It has never been clear whether its impacts is on creating more employment opportunities or rather to accelerate the unemployment rate. The initial arguments were that it causes the workers to lose their jobs. The reason behind this is that the demand for labour falls when the government imposes a minimum wage rate above the equilibrium wage. Employers are not willing to employ more or even the initial labour at the new wage so as to avoid an increased production cost.

The current argument is that the minimum wage above the equilibrium wage will result in an increased employment and a reduced unemployment level. The argument for this is that higher wages will raise the income received by the households. The higher income will be used to raise the demand in the economy. An increased aggregate demand will raise the production in the economy while will raise the need for more labor (O’Neill, 2013). He also noted that in fact, the Australian government had imposed minimum wages which is responsible for the lower unemployment rate. He recommended that other economies being faced with the issue of very high unemployment rate should use Australia as a good example and consider minimum wage a solution.

However, O’Neill also notes that in some cases it causes people to lose their jobs. After the imposition, employers have to follow the rules of the law so as to avoid penalties for breaking the law. Employers are independent, and they make their decisions; in this case, they are left with only two option; to raise the wages to minimum wage or to lay off some of their workers. In sectors where the initial wage rates were too low, they will opt to lay off the workers. However, in sectors where the wage rates were close or at equilibrium, they would opt to increase the wage rates to the minimum wages as it won’t have much influence on their revenues.

The other policies include the fiscal policies of the government. These policies are the cutting of taxes and raising government spending to raise the income of households. A higher income will enable them to demand more. Since the Australian economy is at a very low inflation rate, a tax cut could be the most effective policy in encouraging an increased consumption by households.

The government also offers unemployment subsidies to the unemployed persons. However, it is under certain strict conditions that one become eligible for such grants. The government has to ensure that these people are actively participating in the labour force and should pick any job that they can manage. If these conditions were absent, unemployment subsidies always create a disincentive for work; if the subsidy is higher than what the worker is currently earning, they would prefer not working so as to enjoy the higher subsidies.

The government is also offering vocational trainings that are linked with jobs at very low costs. The less educated group in the society may never get jobs even if the economy rose to full employment. The investment in training people to acquire various skills is an important incentive in controlling structural unemployment. I.e. it would help to ensure that people possess the skills required for various jobs.

The monetary policy of the RBA in Australia involves the cut on the interest rate. Farrer (2015) noted that the RBA pointed out that its reduction of the cash rate by a 0.25 basis was due to the rising unemployment rate. This was meant to result in a lower interest rate which was expected to push up the investment level.

There are differences in the economic growth across the Australian states. This explains the differences in the unemployment rates across the states. Some of the states have very high unemployment rates while it’s low in others.

Chart: The distribution of unemployment across Australian states in August 2016

State/Territory	Unemployment Rate
Northern Territory	3.5
Australian Capital Territory	3.6
New South Wales	5.0
Victoria	5.5
Queensland	6.2
Western Australia	6.3
South Australia	6.8
Tasmania	7.2

Source: ABS Labour Force Survey

The chart above gives the distribution in the ascending order. Tasmanian’s unemployment rate is the highest while the Northern Territory has the lowest rate (Lmip.gov.au, 2016). The differences could be explained by the economic strength of these state/territories (Scutt, 2015). The mining boom in NSW contributed to its reduced unemployment rate for instance (Wade, 2014).

Conclusion

The paper provides a platform in which the government can base its decisions to improve the economy. For instance in the allocation of resources. The regions with high unemployment rates mean that they are underdeveloped and requires capital investment for development to take place. Unemployment is an indicator that can, therefore, be used to indicate the presence of low economic growth.

The performance of the economy in terms of unemployment rate may be deceptive if both the issues of underemployment and the discouraged workers are disregarded. An economy may be said to be performing well in unemployment terms, but if all the unemployment issues were considered, they would be performing quite poorly. There is a large number of unemployed persons who doesn’t participate in the labor force.

There are different types of unemployment. Since they are as a result of distinct factors, no single solution can be used to cure all these situations. The government’s aim is to minimize the presence of long-term unemployment such as structural unemployment. This is the reason for vocational job training.

It is not ethical to exclude some people from being unemployed by making some petty assumptions. Everyone who is not employed and not self-employed should be included in the measure.

References

Abs.gov.au. (2016). 6202.0 – Labour Force, Australia, Aug 2016. [Online] Available at: https://www.abs.gov.au/ausstats/[email protected]/mf/6202.0 [Accessed 23 Sep. 2016].

Bell, S. (2000). The unemployment crisis in Australia. New York: Cambridge University Press.

O’Neill, B. (2013). The Minimum Wage and Unemployment in Australia. [Online] International Man. Available at: https://www.internationalman.com/articles/the-minimum-wage-and-unemployment-in-australia [Accessed 24 Sep. 2016].

Buultjens, J. (2005). Excel HSC Economics. Glebe, N.S.W.: Pascal Press.

Farrer, M. (2015). Unemployment in Australia rises to 6.4%, highest for 13 years, ABS figures show. [Online] the Guardian. Available at: https://www.theguardian.com/business/2015/feb/12/unemployment-in-australia-rises-to-64-in-january-abs-figures-show [Accessed 24 Sep. 2016].

Fowkes, L. (2011). Long-term Unemployment in Australia. [Online] Australian Policy Online. Available at: https://apo.org.au/resource/long-term-unemployment-australia [Accessed 23 Sep. 2016].

Janda, M. (2016). Unemployment falls to 5.8pc as job seekers give up. [Online] ABC News. Available at: https://www.abc.net.au/news/2016-03-17/jobs-data-employment-abs-february-2016/7253944 [Accessed 24 Sep. 2016].

Lmip.gov.au. (2016). LMIP | Labour Market Information Portal. [Online] Available at: https://lmip.gov.au/default.aspx?LMIP/LFR_SAFOUR/LFR_UnemploymentRate [Accessed 24 Sep. 2016].

Mukherjee, S. and Graycar, A. (1997). Crime and justice in Australia, 1997. Annandale, NSW: Hawkins Press. 

Scutt, D. (2015). MAP: Here’s the unemployment rate for every state and territory in Australia. [Online] Business Insider Australia. Available at: https://www.businessinsider.com.au/map-heres-the-unemployment-rate-for-every-state-and-territory-in-australia-2015-10 [Accessed 25 Sep. 2016]. Tradingeconomics.com. (2016). Australia Unemployment Rate Forecast 2016-2020. [Online] Available at: https://www.tradingeconomics.com/australia/unemployment-rate/forecast [Accessed 23 Sep. 2016].

Wade, M. (2014). NSW now has lowest unemployment rate in Australia. [Online] The Sydney Morning Herald. Available at: https://www.smh.com.au/nsw/nsw-now-has-lowest-unemployment-rate-in-australia-20140313-34ojg.html [Accessed 25 Sep. 2016].