ECON – UNIT 3 UNEMPLOYMENT (STUDY NOTES)

Definition & Core Idea of Unemployment

  • Unemployment exists when:
    • Total demand for labour (available jobs) < total supply of labour (available workers).
    • Results in a larger number of workers unable to find jobs.
  • Official unemployment rate = % of labour-force participants without jobs and actively seeking work.
  • Full employment ≠ 0\% unemployment; a "natural" amount of unemployment (frictional + seasonal + structural) is inevitable when cyclical unemployment =0.

Official Criteria for Being “Unemployed”

  • No paid work at all in the reference week.
  • Actively looking for work.
  • Immediately available to start work.
  • Excludes:
    • Underemployed (part-time / casual workers wanting more hours).
    • Hidden unemployed (discouraged job seekers).

ABS Labour-Force Survey (Australia)

  • ~50,000 people (aged \ge 15) surveyed monthly.
  • Classifications:
    • Employed: ≥1 paid hour in the week (full-time or part-time).
    • Unemployed: None of the above but actively seeking.
    • Not in Labour Force (NILF): Neither working nor looking (e.g. full-time students, unpaid homemakers, retirees, permanently disabled).
  • Visual groups: working-age population → labour force → employed (full-time/part-time) & unemployed → NILF subcategories (retired, unable to work, etc.).

Key Quantitative Concepts & Formulae

  • Labour Force (Workforce)
    • All people of working age who are willing & able to work.
    • \text{Labour Force}=\text{Employed}+\text{Unemployed}
  • Labour-Force Participation Rate (LFPR)
    • \displaystyle \text{LFPR}=\frac{\text{Labour Force}}{\text{Working-Age Population}}\times100
  • Unemployment Rate (UR)
    • \displaystyle \text{UR}=\frac{\text{Number of Unemployed}}{\text{Labour Force}}\times100

Worked Numerical Examples

  • Example 1 (Box):
    • Employed =12.6\,\text{m}; Unemployed =0.7\,\text{m}.
    • \text{Labour Force}=12.6+0.7=13.3\,\text{m}.
    • \text{UR}=\frac{0.7}{13.3}\times100=5.3\%.
    • Working-age pop. =20\,\text{m} → \text{LFPR}=\frac{13.3}{20}\times100=66.5\%.
    • Participation tends to rise in booms (higher wages, more vacancies) & fall in downturns; long-run structural trends (e.g. rising female participation, part-time opportunities, delayed retirement) also matter.
  • Example 2 (Table June 20XX):
    • Employed =11{,}636 k; Unemployed =716 k.
    • Labour Force =12{,}352 k; Working-Age Pop =19{,}122 k.
    • \text{UR}=\frac{716}{12{,}352}=5.8\%.
    • \text{LFPR}=\frac{12{,}352}{19{,}122}=64.6\%.

Types of Unemployment

  • Structural
    • Mismatch of workers’ skills/locations with job requirements.
    • Driven by shifts in consumer demand & technology (e.g. self-service supermarket checkouts, autonomous trucks, AI replacing taxi drivers, bakers, fast-food cooks).
    • Often long-term → may require retraining or geographic mobility.
  • Cyclical
    • Linked to business cycle contractions/recessions.
    • Falling demand → firms cut output & lay off staff.
  • Frictional
    • Normal, short-term unemployment while individuals transition between jobs, enter or re-enter labour market (e.g. new university graduates).
  • Seasonal
    • Jobs available only during certain seasons (fruit pickers, ski instructors, summer resort staff, Christmas retail workers). Sometimes grouped with frictional.
  • Hidden (Discouraged) Unemployment
    • Individuals who want work but have stopped actively searching; therefore not counted officially.
  • Underemployment (related concept)
    • Workers employed part-time or on reduced hours who want & are available to work more.
    • Can rise when firms cut hours instead of staff in downturns.

Risk of Automation (Illustrative Chart)

  • High risk occupations (80-90% chance): taxi drivers, fishermen, bakers, fast-food cooks.
  • Low risk (0-20%): firefighters, clergy, photographers, physicians, possibly teachers (debated: “Will the human teacher ever be replaced by a computer?”).
  • Morgan Stanley four-phase timeline for autonomous trucking adoption leading to “utopian” full automation decades out.

Reserve Bank of Australia (RBA) Snapshot – July 2023

  • Economic growth: 7.0\%.
  • Cash rate target: 4.10\%.
  • Inflation: 2.3\%.
  • Unemployment rate: 3.6\%.
  • Wage growth: 3.7\%.
  • Average weekly earnings: \$1{,}378.60.
  • Household saving ratio: 3.7\%.
  • Employment growth: 3.4\%.
  • Net foreign liabilities: 35.2\% of GDP.
  • Exchange rate (approx.): 1\ \text{AUD}=0.67\ \text{USD}.
  • Global context: China GDP growth 4.5\%; G7 GDP growth 1.4\%.

Labour-Market Charts (ABS/RBA)

  • Participation rate & employment-to-population ratio trends since 1975.
  • Employment index vs total hours worked (2008 avg = 100).
  • Average hours worked trending downward even as employment rises.
  • Labour underutilisation (unemployment + underemployment) compared against standalone rates.
  • Job vacancies & advertisements (ABS, ANZ, JSA) track demand for labour; survey discontinuity 2008–09 noted.

Full Employment & Natural Rate

  • Full employment: job availability meets labour-force supply with only frictional, seasonal, structural unemployment present.
  • Natural rate = frictional (incl. seasonal) + structural; cyclical =0.
  • Policy goal: minimise unemployment below natural rate without triggering inflation.

Socio-Economic Costs of Unemployment

  • Opportunity cost: lost output & income; unused labour resource.
  • Human capital erosion: skills atrophy with long-term unemployment.
  • Individual/family stress & mental health issues; diminished self-esteem & dignity.
  • Higher crime rates correlated with high unemployment.