causes and types of unemployment

Definition

To be classified as unemployed a person must be over the age of 15, without a job, and actively seeking work

CYCLICAL UNEMPLOYMENT:

caused by a downturn in the business cycle. Falling demand for goods and services results in firms reducing production, which decreases demand for labour. 

COVID 19

Downturn created decreased demand for G&S therefore firms cut production and lay off workers to keep profits

STRUCTURAL UNEMPLOYMENT:

Occurs because of structural changes in the economy caused by technological changes or changes in the pattern of demand for goods and services. Workers find there is a mismatch of skills demanded by an employer and those skills possessed by unemployed people. Most of Australia’s long term unemployment is caused by structural unemployment.

SEASONAL UNEMPLOYMENT:

occurs due to the seasonal nature of some jobs. It also accounts for the influx of students finishing school, university, and further education (TAFE) courses between December and March each year. 

FRICTIONAL UNEMPLOYMENT:

occurs as people change jobs, moving from one to another. Represents those who are temporarily unemployed, as it takes time to start a new job.

HARDCORE UNEMPLOYMENT:

Individuals who are considered unemployable as they have been out of work for so long because of a personal characteristic such as long-term illness, disability, drug abuse, and criminal behaviour. When unable to work even on a part time basis. They are placed on a disability pension, and are no longer counted in the unemployment stats.

LONG-TERM UNEMPLOYMENT:

unemployed for a period of 12 months or more. Which can be very difficult to reduce as people who have been out of work for a long period of time become less desired by employers, who often prefer skills that are more up to date. If the unemployment has stemmed from structural unemployment, often they possess skills that are not demanded. They also lose confidence. May have started out as cyclically or structurally unemployed

HIDDEN UNEMPLOYMENT:

those who are discouraged and have given up looking for work and/or have gone back to School, therefore do not fit into the definition of unemployment and are thus not reflected unemployment statistics

UNDER EMPLOYMENT:

Underemployment - those who have part time or casual jobs (35 hours a week) but would like to work more hours, they are not classified as unemployed but represent a significant growing part of Australia’s unemployment problem. They are a significant problem as they represent underutilised labour resources.

The level of economic growth

The demand for labour is a derived demand - it is derived from the demand of goods and services that labour helps to produce, if there is a downturn in the level of aggregate demand in the economy, this may be reflected in a downturn in the demand for labour and an increase in unemployment.  This downturn in aggregate demand can be due to an economic downturn with lower domestic consumption and investor spending, government policies (monetary or fiscal policity) designed to dampen demand, or a decrease in demand for Australia’s exports 

The stance of macroeconomic policies

Macroeconomic policy settings can influence the level of cyclical unemployment in the short to medium term, through their influence on the business cycle. 

Fiscal and monetary policy both influence the level of aggregate demand influencing short-medium term unemployment. 

Constraints on economic growth

Long term unemployment is influenced by the level of sustained economic growth achieved in the economy. Significant restraints on the economy will cause an increase of unemployment.

Rising participation rates

 An increase in labour force participation rates will lead to an increase in the rate of unemployment in the short term, as people who were not seeking work (not part of the labour force) join the labour force and are classified as unemployed.

Structural change

Significant short term costs, such as the loss of jobs in sectors undergoing major structural change. However in the long run, this redirects labour to more productive sectors of the economy.

Technological change

In the short term, rapid technological change can cause unemployment

Productivity

The productivity of labour is a significant factor affecting employers' decisions to increase or reduce employment. Low productivity growth lowers unemployment short term, but higher unemployment in the long term, due to slow growing economic growth. Higher productivity growth tends to slow employment growth (increase unemployment) in the short term. However in the long term high productivity contributes to higher economic growth, therefore lowering unemployment rates.

Increased labour costs

Unemployment may rise due to sustained increase of labour costs (wages):

Shortage of skilled labour (competition between employers)

Excessive wage demands

Increase in minimum wage

Rise in labour on costs

Stats

Current unemployment rate is 4.5%

Cyclical: Tied to the business cycle. Surged during COVID-19 in 2020 as demand collapsed; recovered as the economy rebounded 2021–22. Duration: 1–12 months.