economics 2023 | topic 4 - labour markets

what are big picture/structural changes to workplaces?

casual/part-time work

gig economy

greater labour mobility

growth in STEM jobs

technology (ie automation)

what are labour market policies?

any government policy designed to make the labour market operate more efficiently

also provides worker protections

are labour market policies micro or macro economic?

microeconomic measures

centralised wage determinisation

when a central authority (e.g the govenrment) sets wage levels

australia is a….

decentralised economy (but components of a centralised economy)

decentralised wage system

where wages and conditions are determined at a firm or industry level

market forces determine wages/conditions

example of a centralised approach

the safety net → the government stepping in to ensure workers’ rights are upheld

what is the fair work commission (FWC)

the national employment tribunal which oversees the industrial relations system

an independent body

what does the industrial relationships system (IR system) do?

acts as a regulatory body to settle industrial workplace disputes and advise on disciplinary policies, pay rates, working conditions and employment security

provides the framework for managing the labour force

aim of the IR system

settles industrial workplace disputes

advises on disciplinary policies, pay rates, working conditions and employment security

households are represented by

trade unions

what do trade unions view wages as?

a source of income

examples of trade unions

SDA, ACTU, CMFEU

businesses are represented by

business/employer associations

business/employer associations view wages as

a cost of production

examples of business association

BCA, ACCI, NFF, AMA

how does the failure of the free market relate to australia’s IR system?

in the free market, workers could be exploited, so the government must set minimum standards for workplaces

when was the FWC/FWA established

2009

examples of labour market policies

strategies to improve efficiency of work placement

strategies to improve the skills of the workforce

dispute resolution mechanisms

decentralised system for wage determination

the FWC functions

establish and review modern awards

approve enterprise agreements

adjudicate on unfair dismissal cases

conduct dispute resolution and mediation

what are modern awards?

an outline of the minimum wages and working conditions that must be granted to all employees in certain industries (nation-wide)wh

what must modern awards contain?

must contain the 10 national employment standards (NES)

enterprise bargaining

a process for determining wages/working conditions at a firm/industry

employees collectively negotiate with employers to determine their contract

a modification of a modern award

what shows wage decentralisation

move to enterprise bargaining

types of enterprise agreements

single enterprise agreement

multi-enterprise agreement

greenfields agreement

single enterprise agreement

negotiated by employees with an employer in a single enterprise

multi-enterprise agreement

negotiated between 2+ different employers and their workers

greenfields agreement

negotiated between the unions and the employer in a new enterprise or project

private negotiations

outside the formal IR system, but must still comply with the NES

the FWC does not have access to these individual contracts, and if there is a dispute, must go to civil courta

advantages of privately negotiated contracts

may negotiate higher rate of pay than average

disadvantages of privately negotiated contracts

dispute resolution must go through common courts, not FWC tribunals (expensive and lengthy)

hours worked also not held to NES standards

employment safety net

measures in place to ensure workers’ rights are upheld

includes: the NES enforced by the FWC, the minimum wage, modern awards

national employment standards (NES)

set of 10 minimum conditions that employers, by law, must grant to all employees

NES entitlements

maximum weekly working hours (38hrs+ reasonable additional hrs)

requests for flexible working arrangements

parental leave and related entitlements

annual leave

personal/carer’s and compassionate leave

community service leave

long service leave

public holidays

notice of termination and redundancy pay

provision of a fair work information statement

what is NOT part of the NES?

protection against unfair dismissal by employers

current minimum wage

$23.23 as of july 2023

minimum wage definition

the lowest wage legally paid per hour

what is the minimum wage on a d/s diagram?

a price floor (above equilibrium wage rate)

why does the minimum wage increase over time

to improve the standard of living for the lower-income earners

the economy is growing strongly

productivity has improved

inflation

australia’s overall economic outlook is positive

demanders of minimum wage labour:

hotels, retail, hospitality, aged care

elasticity of minimum wage labour demand

demand is inelastic

elasticity of minimum wage labour supply

supply curve is inelastic (most low-income earners who need work generally are already in the labour force)

why has membership of unions decreased?

due to more safety measures like the NES

more options for negotiation/the increase in enterprise bargaining to determine wage outcomes

aims of trade unions

to enforce employment rights

to protect wages and improve the standard of living of members

promote improvements in working conditions and health/safety issues

promote workplace training and education (increase human capital)

cons of trade unions

collective bargaining power leads ot high cost of wages, passed onto higher prices (cost-push inflation)

may block introduction of flexible working practices or new technology

possibly protects unproductive workers

when the supply of labour is decreased….

wages rise

where does the market wage rate for a particular occupation occur?

at the intersection of the demand and supply of labour

what impact does trade unions have on the market wage rate?

may lead to successful negotiation of a wage higher than the equilibrium rate (wage floor)

employer association institutions

represent groups of businesses usually from similar industries

provide employers’ viewpoint on wage determination, changes in government policy + other issues affecting business

aim of employer association institutions

seek a more deregulated competitive marketplace free from union/government intervention

business association aims

motivated by profit maximisation

want to moderate wage growth and excessive working condition demands

decentralise broad wage determination → move away from industry-wide awards to enterprise bargaining agreements or individual employee contracts

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pro’s for a centralised wage system

economic management

greater equality

less industrial action

wage stability

lower unemployment

higher efficiency and productivity

con’s for a centralised wage system

higher inflation

lower efficiency and productivity

greater inequality

more industrial action

why is labour a derived demand?

it’s not wanted for it’s own sake, rather for its contribution to production to meet demand for goods/services

elasticity of demand for labour is related to the elasticity of demand for the product

who are the demanders of labour?

firms (employers)

who are the suppliers of labour?

households (employees)

the demand for labour as a curve

downward-sloping

as the price of labour (wages) fall, an individual firm will employ more labour

equation for labour productivity

total output ÷ labour input

labour productivity definition

output per unit of labour per unit of time

how to increase productivity

specialisation

technological advancements

factors affecting the demand for labour

changes in output of the firm

changes in productivity

cost of other inputs

output factors

general economic conditions

conditions in the firm’s industry

demand for an individual firm’s product

input factors

productivity of labour versus other inputs

cost of labour versus other inputs

cost of labour versus cost of foreign labour

why must the wage rate be sufficient to overcome opportunity cost?

the higher the wage offered, the more people willing to reduce their leisure time for work

microeconomic factors encouraging the supply of labour

wages and other incentives

working conditions and other non-financial incentives

microeconomic factors preventing the supply of labour

education and qualifications

institutions

geographic/occupational mobility

geographical/occupational mobility

the level of flexibility and freedom that workers have to move from one region or locale to another in order to find gainful employment in their field

* the willingness of people to move
* the cost/availability of housing in different areas
* the extent of social, cultural and family ties
* the amount of information available to workers about jobs in other areas
* the cost of relocation

macroeconomic factors influencing the supply of labour

size of population

age distribution of population

participation rate

hours worked

income effect of a rise in wages

people feel better off and therefore may not feel a need to work as many hours

substitution effect of a rise in wages

the opportunity cost of leisure rises (the cost of every extra hour taken in leisure rises

as wages rise, the substitution effect may lead to more hours being worked

a rise in the demand labour will result in…

an excess demand for labour

an increase in the wage rate

an increase in the supply of labour will result in….

the wage rate falling

an excess supply of labour

recent unemployment rate

3\.7% (july 2023)

current participation rate

66\.8% (post lock-down)

current inflation rate

7% (sept 2023)

current level of economic growth

2\.3% (march 2023)

what makes the labour market bigger?

birth rate

migration levels

age distribution of population

size of population

working age population (WAP) definition

those aged 15+ in the population

what can the government do to increase the WAP?

encourage birth rate through baby bonuses, child-care subsidies

labour force

those aged 15+ who are working or actively seeking work

those who are not in the labour force

retirees (need to be 66+ for pension)

those already rich

stay-at-home parents

what can the government do to get someone to join the labour force if needed

increasing the retirement age

lowering the pension

equation for the labour force

employed + unemployed

how many hours a week do you need to work to be considered employed?

1 hour

unemployed

those aged 15+

willing and able to work

actively seeking work

formula for unemployment rate

total unemployed ÷ labour force

formula for labour force participation rate

labour force ÷ WAP

full employment (definition)

occurs when cyclical unemployment is zero

people are out of jobs not because the economy is performing badly, but because they don’t have the right skills

what happens when the unemployment rate is too low?

inflation starts to creep up as the eocnomy is growing at a too-rapid rate

cyclical unemployment (definition)

lack of AD that boosts the output levels towards the potential

results in falls in derived demand for labour

what is the policy response to cyclical unemployment?

expansionary monetary policy → lowering cash rate to strimulate spending/investment

fiscal stimulus measures → spending including discretionary changes to budget to boost output towards potential

how long unemployed counts as long-term unemployment?

12 months

what is the policy response for long-term unemployment?

retraining initiatives

structural unemployment (definition)

mismatch of skills required in the industry and possessed by those unemployed

usually long term, caused by a structural change in the industry or region

due to technology or more efficient overseas production

when there is full employment, what is the biggest contributor of unemployment?

structural unemployment

what is the policy response for structural unemployment?

retraining initiatives

labour market reform to link wage growth to productivity

frictional unemployment (definition)

caused by those moving between jobs or entering the workforce

e.g. school leavers, returning parents

policy response to frictional unemployment

recruitment/job searching capabilities

retraining

(pretty limited)

seasonal unemployment (definition)

caused by seasonal changes in specific industries’ cycle

e.g tourism, fruit-picking

not related to the BC fluctuations

policy response to seasonal unemployment

(pretty limited)

promote other industries