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Week 4: Ch7 Unemployment - Coggle Diagram
Week 4: Ch7 Unemployment
LO#1: The unemployment rate, labour force participation rate, & economic cost of unemployment
1.1 The Labour Force
Classified employed person
worked at least one hour or more in the week before the survey
Classified unemployed person
have not worked at all in the week before the survey
must be actively looking for working in the past 4 weeks
must be ready to start work immediately
Unemployment Rate: (number of unemployed / labour force) x 100
Labour Force Participation Rate: (labour force / working age population) x100
1.2 Trends in labour force participation
Increase in labour force participation rate for women
Changing social attitudes
Legislation outlawing discrimination on the basis of gender
Increasing wages for women
Desire to increase household income levels
Families having fewer children
1.3 Job creation & job destruction
AUS eco creates and destroys hundreds of thousand of jobs every year
new firms beign
existing firms expand
some firms contract
some firms go out of business
Part of an economy due to changes in:
consumer tastes & preferences
technological change
entrepreneurial success & failure
The costs of unemployment
Cost to the Gov
Unemployment benefit payment are a net drain on federal budget
Opportunity cost of funds directed towards unemployment benefits
Loss of tax revenue
i.e personal income tax
i.e company tax
i.e excise taxes
Cost to the Individual
Retraining cost
Loss of income & skills
Social costs
Unemployment may contribute to:
family break-ups
health problems
mental illness
crime
political unrest
Cost to the Economy
Loss of human capital
i.e skills may deteriorate if not used
Loss of GDP
Retraining costs
i.e pre-existing skill are no longer require by the economy
LO#3: Labour market regulation & deregulation
3.2 Pros & Cons of labour market regulation and deregulation
Pros
Improved performance can be rewarded with higher wages
Dispute resolution can occur in the workplace
Flexible work arrangement may reduce frictional & structural Centralise wage & Idustrial relations system
Cons
Increased labour market flexibility may cause a decline in the position of low-paid workers
minimum wages may be used to ensure some protection for low-paid workers
Contracts may reduce individual bargaining power between workers and employers
3.3 minimum wages, trade unions, & efficiency wages
Min Wages
Most workers earn wages that are much higher than min wage
The imposition of min wages affect only those in low-skilled, low-paid jobs
Bulk of workers are covered bu min wages set by FWC
Trade Unions
Orgs that bargain w/ employers for higher wages & better working conditions for their members
15% of Aus workforce belong to unions (2017)
Unions may improve working condition & pay for their members
in doing do they also increase employer costs which may reduce employment
Efficiency wages
Worker are motivated to work harder if they receive higher wages
Paying higher wages can offset the cost of the wage, thereby lowering the firm's costs of production
But efficiency wages increase the labour supply, so may increase unemployment
A higher-than- market wage designed to increase worker productivity
3.1 Wage determination & relations in AUS
Deregulated System
moved away from centralise wage & industrial relations system
Enterprise baragaining
Conducted between employers & employees @ workplace level
Compulsory Arbitration
Tribunals determined mim pay rate & working conditions
Mainly done by unions & employers (AIRC)
Dominate form of wage determination in 80s
LO#2: The types of unemployment
Cyclical unemployment (demand deficient)
Even after a recovery, unemployment rate usually continues to rise for some time
Cut-backs on production & workers may lose their job
Frictional unemployment
Arises from the process of matching worker with jobs (which takes time)
people re-entering the workforce after an absence
people who have lost or quit their job and are looking for a new one
High school leaver, uni grads looking for their first jobs
Seasonal unemployment
unemployment due to factors such as
weather
ski instucture
tourism
boating tours
Other calendar-related events
shopping centre Santas
Structural unemployment (technological unemployment)
can last for longer periods b/c workers need time to learn new skills & some may never acquire these
Arises from persistent mismatch between the skills & charaterisics of worker & the requirements of jobs
Full unemployment
unemployment rate will never be 0
At full unemployment, the 'normal' types of employment will still exist
'Norma'l= frictional & structural
AKA Natural Unemployment
Occurs when the economy is operating at potential GDP
There is no cyclical unemployment
Full employment doesn't mean 0