1. 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

2. 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

3. 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 (35 000 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

4. 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

5. 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

6. 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

7. 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)

8. 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)

9. 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. 6202.0 data.

10. Copyright  2005 McGraw-Hill Australia Pty Ltd PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser 18-10 Average Unemployment Rate, OECD and Australia, 1991 to 2002, % p.a.

11. Copyright  2005 McGraw-Hill Australia Pty Ltd PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser 18-11 Structural Unemployment Rate in Australia (%), Average 1982–1984, 1992–1994, 2002, 2003 Source: Adapted from OECD, Economic Outlook, July 2004.

12. Copyright  2005 McGraw-Hill Australia Pty Ltd PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser 18-12 Unemployment Rates (% p.a.) for Various Countries, 1991 to 2003

13. Copyright  2005 McGraw-Hill Australia Pty Ltd PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser 18-13 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

14. Copyright  2005 McGraw-Hill Australia Pty Ltd PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser 18-14 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