Week 4: Ch7 Unemployment

LO#1: The unemployment rate, labour force participation rate, & economic cost of unemployment

LO#3: Labour market regulation & deregulation

LO#2: The types of unemployment

1.1 The Labour Force

1.2 Trends in labour force participation

1.3 Job creation & job destruction

The costs of unemployment

  1. Cyclical unemployment (demand deficient)
  1. Frictional unemployment
  1. Seasonal unemployment
  1. Structural unemployment (technological unemployment)
  1. Full unemployment

3.2 Pros & Cons of labour market regulation and deregulation

3.3 minimum wages, trade unions, & efficiency wages

3.1 Wage determination & relations in AUS

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

Unemployment Rate: (number of unemployed / labour force) x 100

Labour Force Participation Rate: (labour force / working age population) x100

must be actively looking for working in the past 4 weeks

must be ready to start work immediately

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

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

Cost to the Gov

Cost to the Individual

Cost to the Economy

Loss of human capital

Unemployment benefit payment are a net drain on federal budget

Retraining cost

Loss of GDP

Retraining costs

Opportunity cost of funds directed towards unemployment benefits

Loss of tax revenue

Loss of income & skills

Social costs

i.e personal income tax

i.e company tax

i.e excise taxes

i.e pre-existing skill are no longer require by the economy

i.e skills may deteriorate if not used

Unemployment may contribute to:

family break-ups

health problems

mental illness

crime

political unrest

Arises from the process of matching worker with jobs (which takes time)

unemployment due to factors such as

can last for longer periods b/c workers need time to learn new skills & some may never acquire these

unemployment rate will never be 0

Even after a recovery, unemployment rate usually continues to rise for some time

Cut-backs on production & workers may lose their job

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

weather

tourism

Other calendar-related events

ski instucture

boating tours

shopping centre Santas

Arises from persistent mismatch between the skills & charaterisics of worker & the requirements of jobs

At full unemployment, the 'normal' types of employment will still exist

Full employment doesn't mean 0

'Norma'l= frictional & structural

AKA Natural Unemployment

Occurs when the economy is operating at potential GDP

There is no cyclical unemployment

Deregulated System

Compulsory Arbitration

Tribunals determined mim pay rate & working conditions

Mainly done by unions & employers (AIRC)

Dominate form of wage determination in 80s

moved away from centralise wage & industrial relations system

Enterprise baragaining

Conducted between employers & employees @ workplace level

Pros

Cons

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

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

Min Wages

Trade Unions

Efficiency 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

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

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