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.