Unemployment in Australia

Unemployment in Australia

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Unemployment in Australia

Introduction

Unemployment is defined as a condition whereby an individual who has attained the legally recognized working age is actively looking for full time employment but they are unable to find one. It is the number of people in the workforce who would like to work but are technically unable to find work. It is usually calculated as a percentage by diving the total number of unemployed people by the total workforce in a given economy. The workforce is comprised of those people who are willing and are legally and physically able to work. Those people who are voluntarily not looking for work though able to work are excluded from the definition of workforce. Those people who have already retired or are disabled are also excluded from the workforce. Therefore, those people who are literally jobless, available for work or are looking for work are categorized as unemployed. The labor force is a composition of those people who are unemployed and those that are employed. The unemployment rate is the number of those people who are unemployed stated as a percentage of the total labor force.

There are different types of unemployment which are structural, frictional, cyclical, seasonal, voluntary, regional, classical and frictional unemployment. Structural unemployment is caused by mismatch of workers and the available jobs due to inadequacy of skills or inappropriate desired area of work. Frictional unemployment is caused by temporary adjustments between the workers and the employers or from inconsistency or incomplete circulation of information between the workers and the employees. Cyclical unemployment is caused by changes in the business cycle. An expanding economy generally has lower levels of unemployment whereas a recessing economy has high levels of unemployment. Voluntary unemployment occurs when an individual is not willing to work at the prevailing equilibrium wage rate in the economy. Classical unemployment occurs when the wages rate is so high such that the demand for labor by firms decreases making the economy to have surplus of people willing to work but are unable to find work. Seasonal unemployment happens during specific seasons of the year when firms produce and distribute their products. The tourism industry is such example of an industry that experiences seasonal unemployment.

Unemployment is a common feature of many economies at different stages of economic development. Unemployment is associated with increased poverty among the developing economies and an increase in the scourge of criminal activities, despair, helplessness and despondency. There always exists some level of unemployment in all market economies across the world emanating from dynamics in changes in birth rates, growth rates and death rates of the population in a country. The change in population demographic factors has an influence on the supply side of the labor market and consequently the resultant market wage rate.

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A number of factors have had an influence in Australia’s labor market. These factors range from technological advancement, increased globalization of the scale of production, changing population demographics as well as government policy, (Chapman, 2006). Technological advancement in the economy has been a key and major driver of how and the manner in which production of goods and services is carried out in the economy.

Integration of the labor market into the global labor market has seen the economy experience increased competition from low wage economies simply because mobility of labor has been enhanced through more flexible immigration legislations. The inflow of cheap labor from other countries has always increased the supply of labor and thus reducing the equilibrium wage rate. Sometimes it has ended in unemployment as the available labor force is greater than the available job opportunities, (Davis, 2009). Although Australia has managed to keep unemployment rates at the lowest as compared to other countries in the world, unemployment still remains to be a persistent problem in the economy. The introduction of the technological changes in the production of goods and services in the economy saw loss of many job opportunities. The unemployment rate remained still high. The government has since embarked on a process of addressing the long term unemployment in the country, adequate job opportunities for the older generation as well as youth unemployment.

Australia kept its levels of unemployment below the 5% natural rate of unemployment immediately after the World War 11. During the period spanning 25 years after World War 11, the country’s rate of unemployment between 1% and 2% which is quite remarkable,(Chapman, 2006). Almost everybody who desired to work technically got a job and they were able to work. The demographic composition of the workforce since this period has always been made up of youthful males and females who worked till marriage. The 2% unemployment rate is attributable to frictional unemployment that always exists in the market due to inconsistency and incompleteness in the dissemination of the information about employment opportunities in the economy, (Dixon, 2004). It could also have been caused by the obsoleteness of the skills that were no longer useful after the introduction of the technological advances.

During the same period spanning 25 years after World War 11, the level of inflation was however very high due to the negative relationship between inflation and the unemployment rate. The Philips curves indicates that when the unemployment rate is very low, then the level of inflation is very high. High levels of inflation meant high cost of living and impoverishment of the consumers due to erosion of the purchasing power of the money, (Shiskin, 2013). During the late 1970s, the level of unemployment in the country continued to increase to higher levels than it was immediately after World War 11. This paints a picture on the rising trend on unemployment over the years. This increase in the level of unemployment rate may also be attributable to changes in the business cycle over the years especially during the 1970s. The changes is business cycles which made the rate of unemployment to increase from 2% to an average of 7.5% caused the famous cyclical unemployment, (Chapman, 2006). During those periods when the economy was recessing and contracting, there was decreased demand for goods and services from consumers a factor that made firms to reduce on their levels of supply hence retrenching workers and causing unemployment rate to increase. During the periods when the economy was booming, there was increased demand for goods and services, the firms increased their levels of production hence hiring more workers and making the unemployment rate to decrease, (Wooden, 2014). The late 1980s and 2000 are such a good example of a booming business cycle in the sense that the economy successfully maintained the unemployment rates below the natural rate of unemployment of 6%, (Davis, 2009). The unemployment rate during this period remained below 6% twice.

Statistics on unemployment in Australia indicate that the rate of unemployment in the economy is not uniform across all the demographic groups in the country, (Stricker, 2010). Data from the Australia Bureau of Statistics indicate that the unemployment remains to be a critical issue among the youth, single people and immigrants. The youth in the country mostly face structural and frictional unemployment due to mismatch of their skills and the available job opportunities or simply because those who have the desired skills for the available jobs do not have access to the necessary information about the available jobs. Data from the Australia Bureau of Statistics for the year 2005 indicate that unemployment among the married couples was only 3%. Those who were unemployed in this year were mostly voluntarily unemployed. In the same year, the unemployment rates among the single people were four times higher at 12%. This is explained by the fact that unemployed people are less likely to get married, (Wooden, 2014). The youth, who are majorly single people, face frictional unemployment as they switch in between jobs trying to get a stable and permanent job in line with their professional career path, (Davis, 2004). The youth are also a group that is likely to face long term unemployment in case of unsuccessful job searchers.

Unemployment in Australia is also an issue that varies with jurisdiction. The long term rate of unemployment among Tasmanians was 6.5% in the first quarter of year 2016 compared to 5.5% for NSW, 5.9% for WA, 6.2% for Qld and 7.4% for SA, (Wooden, 2014). It can be observed that Tasmania, Qld and SA had unemployment rates that are higher than the 6.0% national average unemployment rate. These differences may be explained by the demographic constitutions of the people across these jurisdictions. Those jurisdictions that have high unemployment rates as compared to the national average of 6.0% have high birth rates, high population growth rates and majority of their population are the youth who face frictional and structural unemployment, (Chapman, 2006). The youth, who are the majority in the economy, also face very high mismatch of skills and the available job opportunities in the market and they may take longer to get a permanent employment. They are also a group that is highly affected by changes in business cycles because they comprise the highest proportion of the labor force actively looking for suitable job opportunities. The government need to come up with stimulus legislative framework that creates more jobs for the youth, (Davis, 2009). The young graduates who are mostly youth also need to embrace technological innovativeness with an aim of addressing local challenges in the economy hence create more job opportunities among themselves. The government should create a supportive framework that enables the youth to get the necessary seed capital that is required for the startup of businesses so that those youth who have viable business ideas can be able to implement the idea hence create more job opportunities, (Wooden, 2014). Such a supportive framework could start with the establishment of a youth business support fund where the youth can be able to get seed capital at low interest rates.

The government also needs to come up with a legislative framework to address unemployment rates in specific states in the country, (Shiskin, 2013). This is because unemployment differs across the states with some states having unemployment rates that are than the national average of 6.0%. These could include legislative framework making education accessible and affordable to all the people in all the states in the country because differences in the accessibility and affordability of education could translate to unemployment, (Wooden, 2014). The government also need to create a legal framework that is conducive to foreign investors to come and make investments in the country hence creating more job opportunities. The government can also prioritize on development projects in those states that have high unemployment rates so that there can be a sustainable source of employment for those who are jobless.

The government can intervene in the labor market with expansionary fiscal policies aimed at mitigating the unemployment effects of a recession in the business cycle, (Stricker, 2010). These fiscal policies include tax reduction with the aim of increasing disposable income for the consumers. Higher disposable income affects the demand for goods and services by consumers hence triggering increased production by firms, (Wooden, 2014). The government also need to come up with policies increasing its expenditure so as to release more money in circulation in the economy, (Dixon, 2004). Increased money in the economy increases demand for goods and services and serves as an incentive for entrepreneurs to start new businesses hence creating employment, (Chapman, 2006).

The government could also address the high unemployment rates in the states of Tasmania, Queensland and South Australia by enacting a legislative framework that enhances and encourages geographical mobility of labor, (Shiskin, 2013). This would be very important in ensuring that those states that have shortage of labor can get it from those states that have surplus of labor hence ensuring employment balance nationally. The government can also use monetary policy such as decrease in interest rates with the aim of making the cost of borrowing money for investment very low, (Chapman, 2006). This serves as an incentive for investors to borrow investment capital, start new business and create more jobs hence reducing unemployment.

Immigrants are another group that still faces high unemployment levels. They faces numerous challenges as new entrants to the new labor market in the new country, (Davis, 2009). Immigrants are a people who have grown up in a different cultural environment with different work ethics and professional code of conduct, (Wooden, 2014). The legal environment may be restrictive in terms of the number of immigrants who can secure jobs in the Australian labor market. Most of the immigrants face structural unemployment as the education system of the domicile country may not have imparted in them the necessary skills for available job opportunities in the new country, (Stricker, 2010). Immigrants normally affect the Australian labor market negatively because they join the labor force making the supply of labor to be higher than demand for labor, (Shiskin, 2013). This in consequence drives the equilibrium wage rate even lower in the economy. Therefore the government should enact legislation making it difficult for immigrants to get well-paying jobs in the Australian economy, (Chapman, 2006). Immigrants make the labor to be cheap and this is a disincentive to the native Australian citizen. Low wages make people unable to meet their basic needs and hence low living standards in the country, (Wooden, 2014). Although the intervention by the government in the labor market is sometimes unnecessary because it interrupts the free operation of the forces of demand and supply in the market, it should intervene in key situations that need action from the state. Such interventionist actions from the government include setting minimum wage rate in the labor market to protect the people looking for work and those already employed from being exploited by the employees due to presence of high labor supply inform of high unemployment in the country. The setting of minimum wage would ensure that employees get equal pay for equal work and that the people are able to afford a decent life.

Factors that affect population demographics such as high fertility rate, high population growth rate and the education system should also be considered by the government. Population growth should be commensurate to the level of economic growth in the country. The government should therefore come up with policies to control population growth, (Chapman, 2006). This will go a long way to reducing unemployment in the states of Australia. Uncontrolled population growth puts pressure on the available resources and employment opportunities. High population that is not properly educated will therefore result to high structural unemployment for the youth due to lack of the necessary skills that are required in the labor market, (Dixon, 2004). The quality of the population in terms of human capita is also a necessary factor in deciding whether to impose controls on the population growth or not, (Chapman, 2006). High population that is highly educated and hence possesses high human capital is important in creating new markets through entrepreneurship and innovation hence reduction of the high levels of unemployment in the country, (Davis, 2009). The government should therefore ensure that there is access to quality and affordable education to all the people within the country as a key policy framework of fighting against unemployment.

In the 1970s, Australia experienced frictional unemployment that affected both men and female workers as well as part-time and full-time workers. This period saw a collapse of both the construction and manufacturing sectors in the economy, (Chapman, 2006). The demographic population that was greatly affected was the males who majorly worked in this sector. The year 1973 saw the highest unemployment for men in the manufacturing sector followed by a peak in women unemployment in the same sector in 1974. The unemployment for male fell from 27% to 18% compared to that for females that fell from 21% to 10% in the same period, (Wooden, 2014) The manufacturing and construction sectors experience cyclical unemployment. Internal and external global factors come into play to cause cyclical unemployment. This scenario of cyclical unemployment can be addressed by diversification such the economy does not depend a few sectors, (Stricker, 2010). For instance, prolonged drought which tends to be cyclical in nature affects the agricultural sector and this may lead to massive job losses if the majority of the people rely on agriculture as a source of employment. Diversification to other sectors such as the service sector, education sector, mining and manufacturing can cushion the economy and country from huge job losses that come changes in business cycle, (Wooden, 2014).

Investment in education is another government policy that has long-term solution to structural and frictional unemployment, (Chapman, 2006). In the year 2013, for instance, bachelors’ degree holders in the entire of the Australian economy reported an unemployment rate of 3.2% compared to 8.2% unemployment rate of those without post-school qualifications. The government therefore needs to come up with education supportive policies such as the higher education loans fund that offers funds to university and college students, (Dixon, 2004). This will be very useful in ensuring that higher education is affordable to all ages. The government also need to boost the research and development research fund to enable continued research. Research and development is very vital in coming up with breakthrough findings that can serve as a basis for starting a business, (Davis, 2009).

Government policy aimed at reducing dependency on welfare programs could also lead to reduction in frictional unemployment among the fresh graduate youth. The welfare program policy should be structured in a manner that gives the youth an incentive to go back to work within a very short period of time, (Chapman, 2006). Well-designed activity tests that efficiently and effectively increase the probability of landing a new job should be initiated to ensure that frictional unemployment among the freshly graduated youth.

Credible economics reforms are another policy measure which the Australian government initiate with an aim of creating more jobs and hence reducing the level of unemployment. These reforms should range from a credible system of contract and property rights, (Dixon, 2004). Foreign investors are normally willing to invest an economy which proper contract and property rights safeguarding their investments, (Wooden, 2014). Foreign investment creates more jobs hence easing structural and frictional unemployment in the economy, (Shiskin, 2013). The government should come up with economic stimulus programs aimed at addressing cyclical unemployment.

In conclusion, the unemployment rate in Australia has on average remained stable around 6% for quite a long period of time as compared to other countries across the world. The government should therefore create an effective legislative framework to address the high unemployment rates among the youth.

References

Chapman, B.(2006). Long-term unemployment: Projection and Policy. Australian Bulletin of Labor, 18(3):195-207.

Davis, S.J. (2009). Gross Job Creation, Gross Job Destruction and Employment Reallocation, the Quarterly Journal of Economics, 107(3): 819-863.

Dixon, R.(2004). The Incidence of long term unemployment in Australia, 1978-2003, Australian Journal of Labor Economics, 7:4.

Wooden, M.(2014). Underemployment, Hidden Unemployment and Immigrants, Bureau of Immigration and Population Research, AGPS Canberra.

Stricker, P.(2010). Hidden Unemployment: The Australian Experience. Institute of Applied Economic and Social Research, University of Melbourne.

Shiskin, J. (2013). Employment and Unemployment: The doughnut or the hole. Monthly Labor Review, pp 3-10.