Chapter 18 The labour force

Copyright 2005 McGraw-Hill Australia Pty Ltd PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser 18-1

Chapter 18The labour force


• Defining unemployment• Types of unemployment

– Cyclical and non-cyclical unemployment• Measuring unemployment

– Direct and indirect measures• Reasons and costs of unemployment• International comparisons

Lecture Plan


• 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

Defining 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

Types of 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

Cyclical (Demand-deficient) 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

Non-cyclical Unemployment


Measuring Unemployment

Direct measures Indirect measures• The labour force

participation rate (LFPR)

100LFUUR

tttt OIUU 1

JLFU

15CV

PLWJLPFR


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)


Australia’s Employment: Full- Versus Part-time (%), Total (‘000), 1991 to 2003

0102030405060708090

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

% o

f tot

al e

mpl

oym

ent

0

2 000

4 000

6 000

8 000

10 000

12 000

Tota

l em

ploy

men

t ('0

00)

P-Time (%)F-Time (%)Total ('000)

Source: Compiled from Australia Bureau of Statistics, Labour Force Australia, cat. no. 6202.0 data.


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


Structural Unemployment Rate in Australia (%), Average 1982–1984, 1992–1994, 2002, 2003

0.0

2.0

4.0

6.0

8.0

% p.a.

% 6.1 7.2 5.8 5.6

1982/84 1992/94 2002 2003

Source: Adapted from OECD, Economic Outlook, July 2004.


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


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


• 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

Costs of Unemployment

Chapter 18 The labour force

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