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Chapter 18 The labour force

Chapter 18 The labour force. Lecture Plan. Defining unemployment Types of unemployment Cyclical and non-cyclical unemployment Measuring unemployment Direct and indirect measures Reasons and costs of unemployment International comparisons. Defining Unemployment.

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Chapter 18 The labour force

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  1. Chapter 18The labour force

  2. Lecture Plan • Defining unemployment • Types of unemployment • Cyclical and non-cyclical unemployment • Measuring unemployment • Direct and indirect measures • Reasons and costs of unemployment • International comparisons

  3. Defining Unemployment • A situation where some people are willing and able to work, but are unable to find paid employment • Sources of information: the Australian Bureau of Statistics (ABS) and Centrelink • ABS regular household surveys (35 000 residences) • ABS criteria: ‘those aged 15 and over’ who were not employed during the survey week • Government requirements for those receiving unemployment benefits

  4. Types of Unemployment • Cyclical (demand-deficient) unemployment • Non-cyclical unemployment e.g. frictional, structural, seasonal • Underemployment: people with part-time jobs would prefer to work full-time/more hours • Hidden unemployment: those prevented from seeking employment because of personal or family circumstances • Hard-core (long-term) unemployment

  5. Cyclical (Demand-deficient) Unemployment • Unemployment caused by the business cycle (deficient demand), that is, by a deficiency of aggregate spending • Business activity Unemployment • Business activity Unemployment • Cyclical unemployment at the depth of the depression (1931–32) reached 30% of the workforce

  6. Non-cyclical Unemployment • Frictional unemployment: those unemployed temporarily as individuals leave one job in search of another • Structural unemployment: a mismatch in the demand for and supply of labour due to changing technology and the changing composition of production • Example: demand for computer programmers, supply of car assembly workers • Seasonal unemployment: fruit-pickers, ski instructors

  7. Direct measures Indirect measures The labour force participation rate (LFPR) Measuring Unemployment

  8. Full Employment • Full employment (natural rate of unemployment) = Rate of frictional unemployment + rate of structural unemployment • Achieved when cyclical unemployment is zero • Full employment is currently estimated by some economists at about 4–5% unemployment (used to be about 2% in the ‘golden era’ of 1950 to 1972)

  9. 90 12 000 80 10 000 70 60 8 000 P-Time (%) 50 Total employment ('000) 6 000 F-Time (%) % of total employment 40 Total ('000) 30 4 000 20 2 000 10 0 0 Dec'91 Dec'92 Dec'93 Dec'94 Dec'95 Dec'96 Dec'97 Dec'98 Dec'99 Dec'00 Dec'01 Dec'02 Dec'03 Australia’s Employment: Full- Versus Part-time(%),Total(‘000),1991to2003 Source: Compiled from Australia Bureau of Statistics, Labour Force Australia, cat. no. 6202.0 data.

  10. Average Unemployment Rate, OECD and Australia, 1991 to 2002, % p.a.

  11. Structural Unemployment Rate in Australia (%), Average 1982–1984, 1992–1994, 2002, 2003 Source: Adapted from OECD, Economic Outlook, July 2004.

  12. Unemployment Rates (% p.a.) for Various Countries, 1991 to 2003

  13. Causes of Unemployment • Deficient demand for goods and services • Increased labour costs • Technological change • Increased savings (less consumption) • Lack of private investment • Anti-inflationary economic policies • Surplus budget reducing aggregate demand • High interest rates reducing the incentive to consume and invest

  14. Costs of Unemployment • GDP gap (forgone output) • Unequal burden • December 2003: Youth unemployment rates were higher than in the late 1980s, with 24.2% of females and 17.6% of males not in education, looking for work • Over 50s rates are extremely high • Non-economic costs • Sociopolitical unrest • Plummeting of morale, family disintegration • Suicide

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