Copyright  2005 McGraw-Hill Australia Pty Ltd PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser 18-1 Chapter 18 The labour force

Copyright  2005 McGraw-Hill Australia Pty Ltd PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser 18-2 Defining unemployment Types of unemployment – Cyclical and non-cyclical unemployment Measuring unemployment – Direct and indirect measures Reasons and costs of unemployment International comparisons Lecture Plan

Copyright  2005 McGraw-Hill Australia Pty Ltd PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser 18-3 A situation where some people are willing and able to work, but are unable to find paid employment Sources of information: the Australian Bureau of Statistics (ABS) and Centrelink ABS regular household surveys ( residences) – ABS criteria: ‘those aged 15 and over’ who were not employed during the survey week – Government requirements for those receiving unemployment benefits Defining Unemployment

Copyright  2005 McGraw-Hill Australia Pty Ltd PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser 18-4 Cyclical (demand-deficient) unemployment Non-cyclical unemployment e.g. frictional, structural, seasonal Underemployment: people with part-time jobs would prefer to work full-time/more hours Hidden unemployment: those prevented from seeking employment because of personal or family circumstances Hard-core (long-term) unemployment Types of Unemployment

Copyright  2005 McGraw-Hill Australia Pty Ltd PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser 18-5 Unemployment caused by the business cycle (deficient demand), that is, by a deficiency of aggregate spending Business activity Unemployment Cyclical unemployment at the depth of the depression (1931–32) reached 30% of the workforce Cyclical (Demand-deficient) Unemployment

Copyright  2005 McGraw-Hill Australia Pty Ltd PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser 18-6 Frictional unemployment: those unemployed temporarily as individuals leave one job in search of another Structural unemployment: a mismatch in the demand for and supply of labour due to changing technology and the changing composition of production – Example: demand for computer programmers, supply of car assembly workers Seasonal unemployment: fruit-pickers, ski instructors Non-cyclical Unemployment

Copyright  2005 McGraw-Hill Australia Pty Ltd PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser 18-7 Measuring Unemployment Direct measuresIndirect measures The labour force participation rate (LFPR)

Copyright  2005 McGraw-Hill Australia Pty Ltd PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser 18-8 Full Employment Full employment (natural rate of unemployment) = Rate of frictional unemployment + rate of structural unemployment Achieved when cyclical unemployment is zero Full employment is currently estimated by some economists at about 4–5% unemployment (used to be about 2% in the ‘golden era’ of 1950 to 1972)

Copyright  2005 McGraw-Hill Australia Pty Ltd PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser 18-9 Australia’s Employment: Full- Versus Part-time (%), Total (‘000), 1991 to 2003 Source: Compiled from Australia Bureau of Statistics, Labour Force Australia, cat. no data.

Copyright  2005 McGraw-Hill Australia Pty Ltd PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser Average Unemployment Rate, OECD and Australia, 1991 to 2002, % p.a.

Copyright  2005 McGraw-Hill Australia Pty Ltd PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser Structural Unemployment Rate in Australia (%), Average 1982–1984, 1992–1994, 2002, 2003 Source: Adapted from OECD, Economic Outlook, July 2004.

Copyright  2005 McGraw-Hill Australia Pty Ltd PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser Unemployment Rates (% p.a.) for Various Countries, 1991 to 2003

Copyright  2005 McGraw-Hill Australia Pty Ltd PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser Causes of Unemployment Deficient demand for goods and services Increased labour costs Technological change Increased savings (less consumption) Lack of private investment Anti-inflationary economic policies – Surplus budget reducing aggregate demand – High interest rates reducing the incentive to consume and invest

Copyright  2005 McGraw-Hill Australia Pty Ltd PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser GDP gap (forgone output) Unequal burden – December 2003: Youth unemployment rates were higher than in the late 1980s, with 24.2% of females and 17.6% of males not in education, looking for work – Over 50s rates are extremely high Non-economic costs – Sociopolitical unrest – Plummeting of morale, family disintegration – Suicide Costs of Unemployment