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6/25/2012
A Very Brief History of Australian Unemployment....
There are sharp differences in the level of volatility of the unemployment rate across the
decades of the twentieth century. From Federation in 1901 to 1929, the unemployment rate
averaged around 5 per cent, with some significant ups and downs.
The Great Depression of the 1930s witnessed a dramatic rise in unemployment, peaking at
nearly 20 per cent and this was followed by an equally dramatic fall from the mid- 1930s to
the middle of the Second World War. The period from 1942 to the early 1970s saw
unemployment
l
t rates
t th
thatt were relatively
l ti l llow and
d stable,
t bl ffalling
lli
b
below
l
2 per centt d
during
i
th
the
immediate post – war period and again in the late 1960s.
From the early 1970s, unemployment drifted upwards with sharp peaks in the early 1980s
(just over 10%) and the early 1990s (around 11.1% in 1992). Since 1993, the trend has been
downwards until by 2006 the unemployment rate dipped below 5 per cent, a level last seen
in the mid – 1970s.
UNEMPLOYMENT
Source: Bhattacharya and Hatton, Economic Record, June 2011
University of Wollongong - HSC Economics Day
Thursday 21 June 2012
Peter Kennedy
The total level of unemployment existing at any point in time
can be decomposed into several types of unemployment, each
of which has different causes. The following are the main
categories of unemployment.
(i)
•
•
•
Frictional, Structural and Seasonal Unemployment
Frictional Unemployment: this type of unemployment is caused by the search
times needed for workers to find jobs and for firms to find employees.
Structural Unemployment: This type of unemployment is caused by changes in the
structure of the economy, which in turn are caused by either technological change or
changes in the overall pattern of demand.
Seasonal Unemployment:
p y
Seasonal
unemployment is part of frictional
unemployment but may be categorised
separately since specific industries or
occupations are characterized by
seasonal work which may lead to
unemployment.
A difficult topic to navigate, let’s start with some definitions... (iii) Long Term and Hard Core Unemployment
(ii)
Cyclical (demand-deficient) and Wage – Induced Unemployment
•
•
Cyclical (demand –deficient) Unemployment: This type of unemployment is caused by
a deficiency of aggregate demand for goods and services relative to the full employment
level of demand.
•
•
Wage – Induced Unemployment: This type is caused by workers demanding and
obtaining excessively high real wages, that is real wages above the level that would
create full employment.
Long term unemployment: Refers to those persons unemployed for over 12 months.
This is usually due to a lack of skills, training , education or the motivation to find secure
and suitable employment opportunities in the labour market.
Hard Core Unemployment: is a term used to refer to those people in the labour force
who experience chronic periods of unemployment or extended periods of long term
unemployment.
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(B) The Policy Objective of Full Employment and the NAIRU
A C T IV I T Y : I de nt if yi ng t he D if fe r ent T y p es of U ne m plo y m e nt.
In the labour market there is a balance between the number of workers who are
losing or leaving jobs and the number of workers who are finding jobs. When
the number of workers finding new employment is equal to the number who
are seeking work we have full employment in the labour market and the rate
of unemployment that corresponds to this situation is known as the natural
rate of unemployment.
E a c h o f t he fo ll o wi ng sc en a ri os re la t es t o a pa r t ic ula r ty p e o f u nem p lo y m e nt .
I d ent if y e a ch e m pl o ym e nt t yp e a nd w r ite it in th e sp a ce pr o v id ed .
Sc e na ri o
a ) Su h in a is o n e o f G e rm a n y ’ s to p s k i i n s tr u ct or s b u t s h e
n o tic es th at th e sk i sea s o n s in G e rm a n y a re g et tin g sh o r te r
ea ch ye a r a n d tim e sh e is e m p lo y e d (m on t h s o f t h e y e ar ) is
g et tin g s h o r te r a s w ell . H er fr ie n d s te ll h e r i t is d u e to g lo b a l
w ar m in g a n d g r ee n h o u se g a s es b u t Su h in a ju s t lau g h s th is o f f
s a yi n g “it is si m p ly b e ca u s e th e sn o w is m e lti n g fa ste r a n d h a s
n o th in g t o d o w it h g as es f r om p eo p le li vi n g in g r ee n h o u ses or
h o w wa r m th e ir h ou s es g e t ”
b ) Da n e w o r k s f o r o n e o f t h e U SA ’ s b ig g e st s h i p p in g co m p a n ie s .
H e r ec en t ly g o t h is red u nd a n cy no ti ce d u e t o n e w co n ta in e r
lo a d in g eq u i p m en t m ea n in g le s s d o c k w o rk e rs ar e n o w n e ed e d .
H e is re q u ir ed t o fin is h u p h is jo b in 2 m o n th s tim e.
c ) H es s a i s a v e ry s k i lfu l s u rg eo n w h o h as ju st le ft h er jo b a s th e
le ad in g t h o ra ci c ( h ea r t) s u rg e o n at Du b a i’ s to p h o s p it al. S h e w a n ts
to h a v e s o m e tim e o f f to g o s k iin g i n Eu ro p e b ef o r e ta k in g u p a
n ew j ob a t a n o th e r h o sp i tal .
d) Ja k e is on e o f Sy d n e y ’s t o p ‘s an ta cl au s e s’ . He h as a
w o n d er fu l “H o H o H o ” c r y a n d en s u re s h e m ain t ain s h is str ic t
d ie t to k e ep th e r eq u ir e d b o d y sh ap e . U n fo r tu n a tel y h e c an o n l y fin d
em p lo y m e n t f o r a lim i ted n u m b er o f m o n th s o f th e ye a r.
e ) C h an d r a w a s a ve r y e x p er ie n c ed ‘ Ka b u k i m a k e – u p ar tis t in
T o k y o u n til t h e e co n o m i c s l u m p o f 2 0 0 8 . S h e h a s n o t w o r k ed s in ce
lo s in g h er jo b d u e h e r em p l o y er w en t b a n k r u p t in th e sa m e y e ar .
f ) E v ie w o rk e d f o r a M cD o n a ld s r est au r an t in Sy d n e y u n til s h e
tu r n ed 1 7 y e ar s o f ag e an d w a s d u e t o g o o n to ‘ ad u lt wa g es ’.
Sh e w as ‘ le t g o ’ b y h er em p lo y er b e ca u s e h e c ou l d h ir e a
p er so n o n ju n i o r w a g es ( lo w e r w a g e r at e) to d o h er j ob .
Figure 1: The NAIRU and Short Run/Long Run Phillips Curves
The NAIRU Model
As already noted, a more recent refinement to the natural rate of
unemployment model is what is termed the Non- Accelerating Inflation rate
of Unemployment or the NAIRU.
LRPC = NAIRU
The unemployment rate corresponding with no excess- demand pressure
on inflation is identified in this model as the NAIRU.
What is the value of the NAIRU
Okun’s Law
As far as determining the actual value of the NAIRU this has become an
increasingly complex exercise involving elaborate specifications and
econometric techniques.
The relationship between output growth and the change in the
unemployment rate is depicted in the theory know as Okun’s Law (named
after economist Arthur Okun). According to Okun’s Law the annual growth
rate of output has to be at least equal to the growth rate of the labour
force plus the growth rate of labour productivity in order to prevent
unemployment from rising.
?
One recent study by two academics from the University of Melbourne (Robert
Dixon and Sarantis Tsiaplias)
p ) published
p
in the Economic Record (Dec
(
2009))
found that the NAIRU varied over time and between 2001 and 2008 ranged
from 4.5 per cent to 5 per cent.
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Hysteresis
For example, suppose the labour force grows at 1.9% per year and
labour force productivity (output per worker) grows at 1.4 % per
year, then output must grow at:
1.9% + 1.4% = 3.3% per year
if the unemployment rate is to stay constant.
constant
The hysteresis line of argument suggests that the natural rate of
unemployment is not independent of actual unemployment.
This line of argument holds that the ‘natural rate’ depends on the
history of actual unemployment or that the rate of unemployment to
p
on the historyy of
which the economyy eventuallyy returns, depends
unemployment.
Policies to Reduce Unemployment
•The
hysteresis phenomenon is usually explained through one of two
reasons. Firstly, that high persistent unemployment has led some
workers to remain unemployed for such a long time that they have
become unemployable due to losing skills, self esteem or labour
market contacts.
Policies to reduce unemployment and move the economy on a path
towards full employment or the NAIRU, can be grouped into two
broad categories: those designed to alleviate cyclical unemployment
and those suitable for alleviating structural unemployment.
•The second version purports that high unemployment has led to a
change in labour market institutions(governments offering more
generous unemployment benefits) which has in turn led to an increase
in the natural rate.
Monetary and Fiscal Policies – Alleviating Cyclical Unemployment
Microeconomic Policy – Reducing Structural Unemployment
With regards to cyclical unemployment, monetary and fiscal policies
have been the traditional weapons against cyclical downturns in the
economy and the increasing levels of unemployment that accompany
periods of slower economic activity.
Experience in economies such as Australia over the last couple of
decades has shown that monetary and fiscal policies are relatively
ineffective in terms of reducing structural unemployment and
encouraging longer term employment.
Fiscal stimulus (expansionary fiscal policy) and the easing of
monetary policy have the potential to stimulate aggregate demand
leading to increased output of goods and services in the economy.
Greater emphasis has been placed on microeconomic policy in the
form of labour market policies, government employment programs and
education and training programs to help workers and employers adjust
to structural changes taking place in the workplace.
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Policies to Assist Disadvantaged Members of the Labour Force
More recently, attention has been focused on the need to devise and
implement labour market policies to assist disadavantaged members of
the labour force in gaining employment.
In this context the 2011 Commonwealth Budget announced a number
of measures designed to encourage skill – building and greater
participation in the workforce by disadvantaged groups.
Labour Force Under-utilisation
As observed by the Productivity Commission (2010), there is a growing level
of criticism of the accuracy of Australia’s unemployment data and the way we
define and measure unemployment.
More specifically, it is claimed that ABS definitions of employment and
p y
g for decades and that there is a huge
g reserve
unemployment
have not changed
of under - utilised workers that is creating a serious distortion in the Australian
labour market.
Unemployment and Labour Force Underutilisation
The Australian labour market proved to be very resilient during the GFC with
the rise in the unemployment rate being contained to a modest 1.6%.
The unemployment rate for the Australian economy rose from a 4.2%
4 2% low in
2007-08 to a peak of only 5.8% in 2008-09.The number of persons unemployed
rose by 189,100 persons, from 473,800 persons in 2007-08 to 662,900 persons
in 2008-09 or 5.8% of the total labour force.
Labour Force Under-utilisation
This has led to the calculation by the ABS of the labour
force underutilization rate (equal to the sum of he
unemployment rate and the underemployment rate)
which was measured at 10.4% of the workforce in August
2010.
While the official ABS data is useful for making comparisons between the state of Australia’s labour market and those of other economies, it The issue of job insecurity and the risk of labour market participants experiencing underemployment, has received heightened attention ov
Labour Force Under-utilisation cont’d
Job Insecurity and Underemployment
While the official ABS data is useful for making comparisons between the state
of Australia’s labour market and those of other economies, it does tend to mask
some of the deeper seated problems that continue to hinder the efficiency and
equity of labour market outcomes.
The issue of job insecurity and the risk of labour market participants
experiencing underemployment, has received heightened attention
over recent years.
Issues such as the number of ‘discouraged
g workers’ who fail to be counted in
official unemployment figures, mature-aged workers who feel discriminated
against by contemporary recruitment practices and women with children who
find it near impossible to negotiate more flexible work hours remain far from
being resolved.
It would seem fair to conclude, that despite the success of labour
market programs in bringing the unemployment rate down
towards its natural rate (or the NAIRU) over the past couple of
decades, there is still scope for not only reducing welfare
dependency but also greater assistance to help discouraged and
under- utilized workers return to full time employment.
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Youth Unemployment – A global Snapshot (2007 -09)
Five Different Ways of Measuring the Level of Unemployment Labour Force Unemployment Rate 4.9% April 2012 The NAIRU 5% approx LongTermUnemployment Rate
Long Term Unemployment Rate 19% July 2011 Labour Force Under‐ utilisation Rate 10.4% Aug 2010 The Youth Unemployment Rate 24.7% Feb 2012 All rates are expressed as a percentage of the workforce except for the Long Term Unemployment Rate which is a percentage of the total unemployed. What the students wrote On the topic of
unemployment…..
Females are also amongst the unemployed,
mainly due to pregnancies and raising a familysometimes it is by choice.
What the students wrote on the topic of
unemployment…..
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Eg fruit picking. As the fruit only needs to be
picked during one part of the year, the rest of the
year the fruit must find some other form of
employment.
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Full unemployment is when you are completely
out of a job.
People affected by seasonal unemployment
might be ski instructors
These
people
the discouraged
Th
l suffer
ff ffrom th
di
d
worker hypothesis
At the last federal budget the government
introduced a contemporary macroeconomic
policy known as ‘fiscal policy’
The horse and cart has now been replaced
by the automobile.
Another means of measurement is a head
count at CES branches at a particular point
in time.
Eg bank tellers taking the place of a human.
According to a local newspaper, name which
cannot be revealed due to HSC regulations
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