Unemployment Notes

Unemployment

Defining Unemployment

• Labour Force: In Australia, anyone over 15 can participate in the labour force.
• The labour force comprises those of working age who are willing and able to work (employed and unemployed).
  • Willing means actively seeking work.
• Age Pension: Eligibility is rising to 67 by July 2023; plans existed to potentially extend it to 70 by 2035.

Measuring the Labour Force

• Labour Force Participation Rate:
  • Formula: $\frac{\text{Labour force}}{\text{Working age population}} \times 100$
  • In March 2025, the rate was 66.9%.

Defining and Measuring Unemployment

• Unemployed (ABS Definition): A worker in the labour force who is willing and able to work but cannot find work.
  • Willing includes actively seeking work (checking ads, applying, registering with agencies).
• ABS Monthly Survey: Conducted on approximately 50,000 people.
• Unemployment Rate:
  • Formula: $\frac{\text{Number of unemployed}}{\text{Labour force}} \times 100$

Example Calculations

• Economy 1 (in millions):
  • Working age population: $120$
  • Employed: $80$
  • Actively seeking work: $30$
  • Labour force = $80 + 30 = 110$ million
  • Labour force participation rate = $\frac{110}{120} = 91.7\%$
  • Unemployment rate = $\frac{30}{110} = 27.3\%$

Multiple Choice Questions and Answers (Examples)

• What is the labour force participation rate in this economy?
  • Population: $25$ million
  • Population employed: $15$ million
  • Population not in employment: $10$ million
  • Population unemployed and actively seeking work: $3$ million
  • Population aged 15 years and over: $20$ million
  • Answer: D. 83%
• What is the unemployment rate in this economy? Answer: D. 17%
• Which of the following will cause an increase in the unemployment rate, assuming no more jobs are created? Answer: B. An increase in the size of the labour force

Natural Rate of Unemployment (NAIRU)

• NAIRU Definition: Non-Accelerating Inflation Rate of Unemployment.
• Some unemployment is inevitable; reducing it below the natural level is counterproductive.
• Unemployment > NAIRU: Spare capacity; policymakers should stimulate economic growth (expansionary policies).
• Unemployment < NAIRU: Tight labour market; higher inflation.

Underemployment

• Definition: People working less than 35 hours per week who want more hours.
• Significant problem pre-COVID; less so now due to job shortages.
• Higher in 15-24 year olds.

Types of Unemployment

• Natural Unemployment: Mismatch between skills and jobs.
  • Seasonal Unemployment: Due to time of year (e.g., fruit pickers). Figures are seasonally adjusted.
  • Frictional Unemployment: Workers unemployed while waiting to start a new job.
  • Hard Core Unemployment: Due to personal attitudes or background (mental illness, etc.).
  • Structural Unemployment: Jobs disappear due to economic changes (relocation, tech, policy decisions).
• Long-Term Unemployment: > 12 months, often from structural unemployment.
• Cyclical Unemployment: Due to weak aggregate demand; increases during downturns/recessions.

Problems with the Unemployment Rate

• Doesn't account for hours worked (underemployment).
• Doesn't include those who have given up looking (hidden unemployed).
• ABS publishes underutilisation rates.

Class Activity: Types of Unemployment (Examples)

• Neutron: Not seeking employment, would work as a symphony conductor.
• Crista: Left skilled abalone farming, seeking prawn industry job.
• Natalie: Fired for stealing, has a police record.
• Zubin: Cat trainer fired due to falling enrolment numbers (LOL Cats Training School).
• Vishaal: Advertising director affected by Australia-US Free Trade Agreement.
• Wendy: Highly-paid model wanting more hours.
• Dhanushka: Computer engineer who created a virus.
• Zain: Fired from fast-food chain 14 months ago.
• David: Seasonal male cheerleader.
• Evelyn: Video rental store worker affected by online downloads.
• Jaidyn: Masterchef TV series camera operator (seasonal).
• Diana: Therapist with an annoying voice who has become depressed after seeking employment for 8 months.
• Nick: Tour guide fired because of recession in Ireland impacting O'Shannasey's Tours.

Further Questions (Examples)

• What will be the impact of a decrease in economic growth? Answer: B. Increase underemployment
• Which of the following types of unemployment is not part of the natural rate of unemployment? Answer: D. Cyclical unemployment
• Which of the following is true if the economy is at full employment? Answer: B. Unemployment will be at its natural rate
• Which of the following is most likely to decrease structural unemployment? Answer: A. The government increases its investment in training programs
• Which of the following represents a weakness in the way Australia’s unemployment rate is calculated? Answer: B. Overestimates labour utilisation by not capturing hidden unemployment
• Which type of unemployment is most likely to be related to inflexibility in the labour market? Answer: D. Hard core unemployment
• Which of the following would contribute to hidden unemployment? Answer: B. A prolonged recession in the economy

Calculations (Examples)

• Year 1: Population $22$ million, Population aged 15+ $17$ million, Population aged 15+ without employment $4$ million, Population aged 15+ unemployed and seeking work $1$ million
• Year 2: Population $23$ million, Population aged 15+ $18$ million, Population aged 15+ without employment $5$ million, Population aged 15+ unemployed and seeking work $2$ million
• Calculate the labour force participation rate for this economy in year 1.
• Calculate the unemployment rate for the economy in year 2.
• Identify one type of unemployment not included in official unemployment statistics.
• Identify the change in participation rate for this economy from year 1 to year 2.
• Briefly explain the relationship between the level of hidden unemployment and the labour force participation rate.

Impacts of Unemployment

*Economic Costs
* Opportunity Cost: Labour resource is not being fully used.
* Lower Living Standards: Reduced tax base.
* Decline in Skills: Long-term unemployment.
* Cost to Government: Less tax, more expenditure.
* Lower Wage Growth: Increased labour supply.
Social Costs
* Increased inequality.
* Generational unemployment.
* Links to poverty, debt, homelessness, family breakdown, social isolation, crime, poor health, psychological disorders and suicide.

Groups of Unemployed

• Youth (15-19 year olds)
• Indigenous Australians
• Individuals over 55
• Specific Regions
• Those born overseas

Questions (Examples)

• Which of the following groups has an unemployment rate that is above the average for the overall population of Australia? Answer: A. Young people aged between 15 and 19
• Which of the following is a social cost of unemployment? Answer: C. Increased family breakdowns
• Which of the following would see Australia’s labour force participation rate increase? Answer: c. eligibility for the aged pension is changes from 67 to 70 years of age.

Activity: Linking Unemployment Explanations to Groups

• Groups: The young, those over 55, indigenous, geographical regions, those born overseas.
• Explanations:
  • Not adequate opportunities for education and training.
  • Incorrect skills to fill job vacancies.
  • Wage rates too high.
  • Too many regulations about employment.
  • Choice – receive government employment.
  • High income economies vs low income economies.
  • Not enough help for people with mental illness or disabilities.
  • Labour saving technologies.
  • Economic growth too low.

Activity: Policies to Reduce Unemployment

• Groups: The young, Over 55, Indigenous, Geographical regions, Those born overseas.
• For each group of unemployed, which two policies would most likely reduce unemployment?
• Policies:
  • Economic growth
  • Industrial relations reform
  • Education and training
  • Work for the dole
  • Wage subsidies
  • Reducing regulations
  • Paid parental leave scheme

Trends

• Previous Trends
  • Living on the Brink
• Future Proof
• The Jobs Game

Questions (Examples)

• Which of the following best explains the trends in the unemployment rate after 2007? Answer: C. The long-term trend of falling unemployment ended in 2007,due to rising cyclical unemployment after the global financial crisis
• Why might an increase in economic growth not result in a rapid reduction in the rate of unemployment? Answer: B. Because discouraged workers start looking for work again, increasing the participation rate

Revision Material

• Further reading from the RBA for students