Economics U2 AOS 2a labour market

Labour market

a market for labour services, where buyers and sellers of labour services come together in exchange and where the rate of exchange is the price of labour.

as the price of labour rises, businesses will be incentivized to reduce the demand for labour.

employed

when someone, over the age of 15, is working more than one hour per week in return for some form of measurable remuneration (wage)

unemployed

when someone is over 15, without work or working for less than one hour per week, and actively looking for work

unpaid work

a person doing unpaid work is not considered to be employed.

This may include work that can be done at home e.g. cleaning or volunteer work.

As unpaid work is not captured in GDP figures, the value is not measured

shifts in demand for labour and its factors

any non-price factor that changes an organizations willingness to employ labour will shift the demand curve to the left (decrease) or to the right (increase)

- changes in the level of consumer demand for goods and services

- the number of businesses

- the efficiency of labour

- whether there are substitutes for labour available

- government policy

shifts in supply of labour and its factors

changes in the non-price factors determine whether the quantity of labour supplied by households at any given wage will increase or decrease and shift the supply curve

- the participation rate of the population in the labour force

- net immigration rates

- population increase

- goverment policies

- restrictions on entry into occupations (e.g. uni degrees)

strong labour market conditions

strong labour market conditions develop when the demand for labour rises relative to the supply

these conditions generally occur during periods of rising economic activity. wages tend to increase faster, people work more hours and labour shortages appear

weak labour market conditions

develop when demand for labour falls relative to the supply.

these conditions generally occur during periods of slowing economic activity. wages rise more slowly (or fall), people work less hours and unemployment rises

what are the 6 ABS labour force survey measures

1 - labour force rate

2 - the rate of unemployed

3 - the rate of employed

4 - the participation rate

5 - the underemployment rate

6 - the underutilization rate

Labour force rate and its equation

all those aged 15 and over who are willing and able to work

the labour force rate = number of employed + number of unemployed

the rate of employed and its equation

all those aged over 15 years, working either full time or part-time (a minimum of one hour per week)

the rate of employed = number of people employed/labour force X 100

the rate of unemployed and its equation

aged 15 and over without a job (did not actively work for a minimum of one hour) but actively looking for work (full or part time)

number of people unemployed/labour force rate X 100

the participation rate and its equation

the percentage of the total working age population that are members of the labour force.

labour force/working age population x 100

the underemployment rate and its equation

individuals classified as employed, but would prefer to be working more hours,

underemployed/labour force rate x100

underutilization rate

the proportion of the total labour force that is underutilized. measure spare capacity of the labour market

unemployment rate + underemployment rate

what is the importance of the underemployment rate and underutilization rate?

the unemployment rate alone does not provide a complete picture of the spare capacity in a labour market.

thus, the underemployment and underutilization rate can help provide a more accurate understanding of capacity in the labour market.

what are the two general causes of unemployment?

unemployment caused by a lack of AD (cyclical unemployment)

natural unemployment

how does a reduction in AD cause cyclical unemployment?

reduction in AD means that suppliers will reduce the amount they are producing, thus demand for supply will decrease causing cyclical unemployment.

what is natural employment and the NAIRU?

even during periods of strong AD, there will still be some unemployment, known as the natural rate of unemployment, or the non-accelerating inflation rate of unemployment (NAIRU)

the lowest unemployment rate that can be sustained in an economy without causing inflation to accelerate.

NAIRU exists at the lowest rate of unemployment possible before it causes excessive rates of inflation

what are the 4 types of unemployment?

1 - structural

2 - frictional

3 - hidden

4 - long - term unemployment

structural unemployment

occurs because of a mismatch between skills that unemployed persons have and the skills businesses require.

frictional unemployment

persons who are currently moving from one job to another

hidden unemployment

persons who would like to be working, but have given up or become discouraged from looking for work

long term unemployment

persons who have been unemployed for a period longer than 52 weeks (1 year)

consequences of unemployment on individuals

unemployment greatly reduces a persons income and can have a negative effect on a persons enjoyment on life.

consequences of unemployment on society

unemployment is one of the major causes of inequality in income distribution.

the gap between high and low income earners will widen as unemployment rises.

- may result in resentment and unease between people of diff income levels

- high unemployment may lead to crime

consequences of unemployment for businesses

POSITIVE

- more unemployed means more supply of labour and people for businesses to choose, which may help requiring high quality employees at low wages.

- high unemployment may increase productivity as employees may be fearful of losing their job.

NEGATIVE

high unemployment will lead to less disposable income of households, which reduces consumption demand and thus, AD. Therefore, biz will suffer reductions in profit.

consequences of unemployment for the government

The Gov's 2 biggest source of income come from income tax, and company tax.

- a reduction in unemployment means the gov will reduce the level of income tax collected.

- a reduction in biz profits will reduce the level of company tax collected.

Additionally,

a rise in unemployment results in more people receiving unemployment benefits (jobseeker payments) and thus increases expenses for the gov.

what are the gov policies influencing labour markets?

AD Policies - policies that focus on increasing expenditure in the economy

These include:

- changing income tax rates

- welfare payments

- RBA policy

AS Policies - policies that focus on reducing structural unemployment in the economy.

these include:

- cutting the rates of company tax

- investing in research and development

- improving education and training

- providing better infrastructure for the biz

- skilled immigration policies

- legislation around employment e.g. minimum wage.