eco - changing the labour market

cyclical unemployment

• caused by generally weaker aggregate demand factors that slow spending on Aussie made g/s

• insufficient AD to stimulate need for labour

• usually targeting cyclical unemployment [gov policies]

• inverse relationship between this and the business cycle [when it falls the business cycle rises]

• These changeable aggregate demand factors might include consumer confidence, business confidence, disposable income, government spending, interest rates and overseas economic activity

natural unemployment

• caused by changing AS conditions that alter the way g/s are produced and whether firms expand or close down [especially structural unemployment]

• called natural bc its structural

• not that related to business cycle

• unemployment will still exist even during times of strong AD → when no cyclical

• This ‘natural’ unemployment arises because of the presence of the following four types of unemployment:

  • Structural unemployment (the most important cause)

  • Frictional unemployment

  • Seasonal unemployment

  • Hardcore unemployment

frictional unemployment

ppl who are moving between 2 phases:

• job to job

• uni to job

• etc

• ppl not too worried and can be a sign of an efficient economy

NAIRU

• The natural rate of unemployment is also equivalent to the Non-Accelerating Inflation Rate of Unemployment or NAIRU and is also considered to be the rate of unemployment that exists when full employment is achieved (estimated to be between 4-4.5%). At this rate, unemployment cannot fall further without triggering excessive inflation.

structural unemployment

• biggest single cause of unemployment → most of australia’s current employment rate

• occurs bc of structural change in the way we produce g/s

  • Structural changes where businesses alter the way they go about producing g/s and try to cuts costs/ lift efficiency

causes of structural changes

• new tech/ capital which replace workers

• Changing patterns of demand occur as tastes and fashion change (e.g. structural unemployment in traditional retail stores due to online shopping)

• Increased incidence of outsourcing due to high costs, poor profits and a lack of international competitiveness

• Some government aggregate supply policies:

  • Aggregate supply policies are cost-cutting, efficiency promoting measures that seek to improve business conditions, reduce costs, grow profits, encourage expansion, and boost Australia’s productive capacity. 

  • Especially in the shorter term, some of these policies can lead to higher structural unemployment. E.g., changes to wage fixing involving some deregulation of the labour market, government trade liberalisation that involves gradually reducing the level of tariff protection of local firms from imports.

seasonal unemployment

• termination of sm jobs bc of the seasons

hardcore unemployment

• personal attitudes that are seen by some as hostile to effective unemployment

• sm ppl claim that the welfare system increases unemployment bc it makes unemployment too comfortable creating a welfare trap

• sm times, personal appearance, criminal record/ physical disability may prevent ppl from getting jobs

unemployment impact to material living standards

• not able to afford that many g/s

unemployment impact to non material living standards

• depression

• self esteem issues

• fewer opportunities for meaningful interactions with other ppl

• the longer sm one is unemployed → the more likely they will lose their skills [therefore ppl find it even harder to get a job]

unemployment impact to society

• one of the main causes of inequality in income distribution

• as unemployment increases, gap b/w rich and poor widens → resentment, unease, political upheaval, unrest

• can also result in higher levels of criminal activity

higher unemployment → businesses

advantages:

• large pool of ppl they can choose from → might help businesses recruit higher quality workers at lower costs

• may raise labour productivity bc those in jobs may fear becoming unemployed as well

• higher bargaining power

disadvantages:

• reduces disposable income- → reduction in AD for a range of g/s → businesses may suffer reduction in their profitability which has the potential to result in business closure

higher unemployment → the economy

• valuable labour resources are not being utilised and therefore country is not operating at productive capacity → reduction in disposable income and AD will have an impact on other parts of the economy

higher unemployment → gov

• struggles to achieve budget balance as gov spending will increase as tax receipts decrease

• reduce the ability of gov to invest in future capacity without going into further debt

changing labour market → workers and consumers

• some ppl note that they have less certainty and predictability in employment than their parents who were more likely to stay in one job for their whole life

• some see AI and wide spread use of tech in production as a threat to jobs and future employment

• u need job to enjoy reasonable living standards

changing labour market → business owners

• want wage growth to remain slow

• want less restrictions for immigration

• increases in retirement age

• investment in education and skills training

• relative prices

changing labour market → unions

• encourages stronger wage growth and reducing wage inequality

  • increasing bargaining power of workers relative to employers

changing labour market → gov

• want to use various eco policies to help grow opportunities and achieve the goal of full employment

• likely to want to keep sweet with voters that make them better off

• trying to balance inflation and wage growth

• However, if pay rates increase too quickly, inflation is likely to accelerate and depress the purchasing power of incomes and living standards, while reducing Australia’s international competitiveness.

• This is bad for business owners and it can also ultimately destroy jobs and cause a drop in average incomes. 

• In addition, the Australian government’s ability to influence wages is limited. The labour market has been substantially deregulated and few workers remain on the minimum wage set by the Fair Work Commission. Instead, pay rates are largely set using enterprise bargaining or negotiation between workers and employers.

Efficiency and Equity - trade off

• efficiency will be improved by gov policies that are designed to increase the productivity of workers/ policies that help to ensure that labour markets do a good job at directing labour to those employers who gain the most from the skills provided

• these policies are not equitable → the move away from a centralised wage system to a more deregulated system based on enterprise bargaining → lead to outcomes that are inequitable given its impact on unequal wage outcomes

• On the other hand, policies such as minimum wages and unfair dismissals, can create more equitable outcomes however can negatively impact efficiency.

Fair Work Act 2009

• Main law governing the relationship between employers and employees in Australia.

• It sets out the rights and responsibilities of employers and employees and is administered by the Fair Work Commission.

• At the core of the FWA are protections put in place via the minimum terms and conditions, such as:

  • Discrimination and adverse actions

  • Bullying and sexual harassment

  • Minimum wages

  • Unfair dismissal

surplus of workers

unemployment