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Assignment Sample On Economics Unemployment

Pages () | Downloads - 9 | Published :05th April 2016

Question:- Describe Economics Unemployment and mention different types of unemployment.

Answer:-

Introduction

Unemployment is the bane n most of the countries considering the level of economic development. Unemployment is strongly associated with poverty, depression and exclusion of certain sections of the society from the mainstream life. It causes a downturn in the economy as it poses a constraint on development of the children and instigates conflicts in households. It s believed that all the market economies have certain amount of unemployment due to the dynamic evolution, decline and the exit of firms and also due to the changes in the employment structure. This is the frictional unemployment which no economy can prohibit and it is tolerable. Of all the economic adversities in the economies, unemployment is the persistent and devastating factor within an economy (Canale and Liotti, 2015). The term unemployment had been changing its role from time to time depending upon the economic circumstances and the social conventions. Unemployment is basically defined as the situation where the individuals are not able to obtain job and earn wages which creates a cost and burden to the social and economic status of the country. Unemployment occurs in several ways and it impacts millions of people around the world. People may lose jobs due to the weak economic situation n the country or they could be appointed to a dying industry or there can be unemployment due to the simple transition from one job to another. Unemployment in the countries is rather a stressful situation. In this regard the economists suggest the governments of the countries to implement and formulate steps and measures and policies to combat the dire consequences of the unemployment to ensure that the well being of the economy is maintained. In this research, the cause and effect of unemployment will be evaluated. The paper also includes the unemployment situation and trends in Australia. 

Global Unemployment

Unemployment is defined as the situation that occurs when the people are not able to acquire employment but are actively seeking for one. The unemployment rate is the crucial economic indicator of any country (Coleman, 2000). It is calculated as a percentage by the division of number of unemployed persons by the total labour force in the country. It is during the recession that countries experience increase in the unemployment rate. In the year 2012, it was estimated by the International Labour Organization (ILO) that more than 200 million persons were unemployed (Sedghi, 2015). There are different theories that argue on the origins, causes, effects and the solutions to the unemployment. Classical economists are of the view that the potential solution to the unemployment is through the market mechanism. This theory corresponds to the micro-foundation of the unemployment theories (Koutentakis, 2014). These theories are also contradicted by other theories like the interventions on the labour market, laws regarding minimum wages, unionization, bureaucratic rules of working and many other regulations which cause suppression in the hiring of the workers.

On the other hand, J.M. Keynes focused on the cyclical nature of the unemployment and it suggests that it is the intervention that would reduce the level of unemployment within the economy during the recession. This theory explains the recurrent shocks cause reduction the aggregate demand which lowers the demand for labours. Keynesian assumes that the government can intervene and implement measures to increase the aggregate demand and increase the demand for workers through the instruments like fiscal stimulus, creation of jobs and the implementation of the expansionary monetary policy (Smith and Zoega, 2007).

According to the ILO, the global unemployment rate will continue to rise and is forecasted to be around 212 million by the year 2019. The unemployment rate is forecasted to be stable around 5.9% till the year 2019 and will likely decrease to 5.8% thereafter. The recent report presented by the ILO states that the sluggish nature of job recovery and the social instability are the major cause of the greater inequality within the economies (Lane Chet, 2005). ILO has declared this is a new era of globalization where the economies will experience slow growth with greater inequality and turbulence (Inequality and Unemployment in a Global Economy, 2010). The global unemployment trends till the forecasted unemployment n te year 2019 is depicted in the following chart.

(Statista.com, 2015) 

Types of Unemployment

There are different types of unemployment that are identified by the economists such as the cyclical, frictional, classical, structural, Marxian theory of unemployment, full employment and among other types of unemployment are seasonal unemployment and the disguised unemployment (Stater and Wenger, 2015). There are other two forms of unemployment that economists define in simple concept. The voluntary and the involuntarily unemployment helps to draw the thin line between the people who are willing to be employed but cannot seek job and the people who deliberately do not want to participate in the workforce (Mankiw, 2012). The voluntary unemployment is the decision of the economic agents but the involuntary unemployment is a result of socio-economic circumstances. Voluntary unemployment may occur due to the low wage, firing of workers due to any financial crunch, industrial transformation, bankruptcy and even due to the organization re-structuring. Some of the types of unemployment are discussed below:

Classical unemployment- this is also known as the real wage unemployment which occurs when the real wage of the labours are set above the market clearing wage. This causes the inflow of workers relative to the number of vacancies causing an adverse situation of unemployment. Suppose the minimum wage law increase the cost of the low skilled labours above the market clearing level then the unemployment will increase (McTaggart, Findlay and Parkin, 2012).

Cyclical unemployment- this is also known as the Keynesian unemployment which occurs manly due to the deficient demand. The sudden fall in the aggregate demand in the economy reduces the demand for workers. In this case the wages are sticky and there is mass unemployment. Keynes suggests it is the government that can resolve the unemployment problem through the implementation of deficit financing so that the demand will be increased and thus employment.

Structural unemployment- this type of unemployment occurs when there is no job available for the workers due to the mismatch in the skills. There exists a gap between the skills that are required by the industry and the skills of the unemployed persons.  Structural unemployment can also occur due to the technological innovations which mean that workers are replaced with machines leaving them unemployed.

Frictional unemployment- This type of unemployment occurs when the persons switch jobs. T is the time period when a worker changes work from one job to another. The frictional unemployment is prevalent in every economy mainly because of the heterogeneity of the nature of jobs and the workers.

Marxian theory of unemployment- Marx was of the view that the unemployment is a result of the unstable capitalist system which causes a decline in the wages and is caused due to surplus labour. Like Keynes, Marx also states that unemployment is also result of weak aggregate demand.  

Hidden unemployment- this type of unemployment is a result of inappropriate collection of unemployment statistics. In this case people are actively searching for jobs are counted as unemployed but the people who have given up looking for jobs are not counted. The under-employed people are also not counted which is why every economy has a hidden unemployment count (Hubbard, O'Brien and Sharma, 2012).

Full employment- when the aggregate demand is increased and the cyclical unemployment are abolished then the economy is under full employment. But the economists believe that the inflation barrier causes the unemployment to exist in the economy. It is here that the theory of natural rate of unemployment that forms the building block. The natural rate of unemployment is referred to as the situation where there exists unemployment within the economy when the labour market is in equilibrium and there is no effect of the inflation rate.

 

Causes of Unemployment

There are several factors that determine the level of unemployment level within an economy. Some of the economists are of the view that the unemployment is a result of deficient demand but on the other hand some economists believe that the reason behind the unemployment is the technological changes in the industries. Apart from these reasons there are other several reasons that contribute to the level of unemployment. Some of which are discussed below:

  • Changes in the technology within the industry cause unemployment. The industries are always innovating to increase the productivity. In doing so they sometimes displace unskilled workers with machines.
  • Recession is the contraction phase of the business cycle where the economic activities has slowed down. It is the situation where the main economic indicators like the GDP, there investment expenditure, income, profits of business and inflation declines but there is a rise in the bankruptcy and the unemployment rate. Thus unemployment is caused due to the economic slowdown.
  • Inflation is another cause of unemployment as the overall price index rise the consumers will withdraw the demand creating a situation of excess supply. The industries or the firms would cut down the production and cost of the firms through labour cut down. This would cause demand deficient unemployment in the economy.
  • Workplace influence- The employment depends upon the conditions at the workplace. The attitude of the employers determines the level of job satisfaction of the employees. if the employees are satisfied then they would not budge from the current employment. But if the employers treat unfairly with the workers then they would leave the job and the unemployment within the economy rises.
  • Rural-Urban Migration is one of the most important causes of unemployment. Unemployed people from the rural sector migrate to the urban sector in search of jobs and better forms of employment. The problem arises when the number of people migrated do not coincide with the number vacancies in the economy (Ek and Holmlund, 2014).
  • Rapid population growth increases the supply of labour in the economy. The number of the vacancies does not coincide with the increase in the labour supply. Thus there arises a situation of excess supply of labour and the rate of unemployment rises.
  • Standard of education can also cause unemployment in the economy because the economy contains unskilled labours which are not absorbed by the industries leaving them unemployed.
  • Corruption is another crucial cause of unemployment which occurs when the officials at the authoritative positions appoints undeserving individual which implies that the skilled and the deserving candidates are deprived of the employment causing unemployment to rise in the countries.

Unemployment in Australia

One of the key drivers of poverty in Australia is the level of unemployment which is considered to be an important economic indicator. The unemployment rate determines whether the economy is operating to its full capacity. The latest trend in the unemployment rate estimated by the Australian Bureau of Statistics (ABS) based on seasonal adjustment was 6.3% in January 2015. This is so far the highest rate of unemployment since July 2002. The increasing trends in the unemployment rate in Australia reveals that the unemployment woes will continue in the upcoming years in the country. The graph below will help to understand the trends in the unemployment rates. The impact of the Global Financial Crisis (GFC) had lasted more than the impact caused by the previous recession (Economywatch.com, 2015). Thus, it can be said that the unemployment rate is still rising over the years after the GFC.

 

(Tradingeconomics.com, 2015)

In July 2015, the unemployment rate was about 6.3% which had been increasing from the previous quarter which was about 6.1%. The labour force participation which is seasonally adjusted was recorded to increase from 64.8% in June to 65.8% in July 2015. The country has created 38500 jobs but the number people unemployed in Australia had risen by 40,100. The employment rose to 11,810,700. In this the full time employment increased to 8,170,400 and the part-time employment increased to 3,640,300. The number of people who are unemployed and are looking for full time jobs have increased to 568,100 and the number of people who are unemployed and are searching for part-time jobs have risen to 232,600.

The unemployment rate has been increasing mainly due to the rapidly increasing population Australia. The population in Australia had been increasing over the years and in 2014 it was recorded to be 23.5 million. The unemployment condition in the economy arose mainly due to the lack of jobs matching the population of the countries. This means that the number of people who are eligible and willing to work have exceeded the number of job vacancies in Australia. Job vacancies in Australia had been increasing mainly due to the opening up of new companies due to the advent of globalization and due to the rise in the retirement of the employees. The number of vacancies in Australia was 155.70 thousand as recorded in the second quarter of 2015 which has increased from 152.80 thousand in the first quarter of the 2015. As the unemployment is increasing in Australia it must also be considered that the labour force participation rate has also increased to 65.10% in July 2015 as against the 64.80% in June 2015 (Tradingeconomics.com, 2015). The following charts explore the trends in the population growth, unemployed persons, number of job vacancies and the labour force participation rate.

(Tradingeconomics.com, 2015)

 

Causes of unemployment in Australia

The unemployment rates have been increasing over the years yet Australia had been able to stabilize the unemployment rate at low rates as compared to most of the countries. The unemployment rate has persistently been the problem of the economy of Australia. The cause of the unemployment can be attributed to the changes in the production patterns. This caused cut down in the job opportunities in the country which increased the unemployment. The higher rates of unemployment are experienced by the youths and immigrants. The immigrants in Australia are the main cause of unemployment (the Guardian, 2015). This is because the immigrants search for jobs in Australia which does not match with the number of jobs available in the economy. The unemployment rate also increased due to the changes in the labour demand patterns. This is mainly due to the technological changes in the industries. The technological changes in industries cause a fall in the employment as machines replaces the unskilled labours. There is also a declined demand for labours from the western world that increases the level of unemployment within the economy. The structural changes in the industries cause less requirement of traditional employment in the primary and the secondary sectors. In Australia the technological, structural as well as the organizational changes in the mining, agriculture and manufacturing industries have increased the overall unemployment rates in Australia (THE TEENAGE DREAM UNRAVELS TRENDS IN YOUTH UNEMPLOYMENT, 2015).

The composition of the unemployment pool in percentage based on age groups and education from the year 2008 to 2012 are provided below (Aph.gov.au, 2015):

Age

2008

2009

2010

2011

2012

15-24

43.50

43.80

40.80

42.80

43.80

25-39

27.40

28.40

31.20

31.10

31.30

40-54

20.10

19.00

20.00

18.40

16.60

55 and above

9.00

8.80

8.00

7.70

8.40

Total

100.00

100.00

100.00

100.00

100.00

Education

 

 

 

 

 

>  year 12

44.90

45.90

45.00

32.10

36.10

Year 12

19.70

22.50

23.80

20.00

20.20

Certificate III or IV

15.90

16.10

14.50

20.80

18.40

Tertiary

19.40

15.60

16.70

27.10

25.30

Total

100.00

100.00

100.00

100.00

100.00

 

Effect of unemployment in Australia

The unemployment rate causes economic inequality in Australia which negatively impacts the economic growth of the country in the long run. The employment causes redistributive pressures and distortions that increase the poverty level of the country. This cause economic unrest and conflict. Unemployment causes decrease in the level of income in the households that leads to failure of mortgage payments and decrease in the consumption expenditure. Thus, the aggregate demand in the economy decreases. The increase in the unemployment can encourage xenophobia and the protectionism as the workers are being outsources in most of the developed countries. The crime rates may increase due to unemployment. The lack of jobs in Australia can increase the rates of crime as they would have no other option but earn a living out of unfair means. The absence of jobs implies that there is a decline in the income of the consumers which will degrade the quality of life in Australia. It is worth mentioning that the Aboriginals in Australia is the deprived section of the society. They are the ones that do not receive the basic amenities of life like education, health and other important facilities, Lack of education causes unemployment and thus they have minimal income for survival and mortality rates rises due to starvation.

Measures taken by Australia government

The aim of the government of Australia is to increase the labour force participation rate and productivity growth which will be commenced through the macroeconomic policies and well functioning markets. The government can implement the fiscal and the monetary policies to combat the unemployment rise and restore the economic growth of the country.  The government has also undertaken the Roads to Recovery Program which improved the economic activity of Australia and reduced unemployment. Other policies include to unemployment benefits, welfare work package and incentives to workforce (Ozkan, 2013)  which will increase the level of labour force participation rate (Ozkan, 2013).

Conclusion

The unemployment rate is the most crucial economic indicator of the well being of the economy of Australia. Thus it is very important for the economies to reduce the level of unemployment to restore the economic growth within the countries and thereby combat the poverty level. In this paper the different concepts and types of unemployment are recognized and explained. The paper also highlights the issue of unemployment in Australia which includes the reasons and the consequences of the unemployment in Australia. Lastly, different measures taken by the government of Australia are also explained which helps to reduce the unemployment in Australia.

References

Aph.gov.au, (2015). Labour Stats 101 unemployment: a quick guide – Parliament of Australia. [online] Available at: http://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/rp/rp1314/QG/Unemployment [Accessed 3 Sep. 2015].

Canale, R. and Liotti, G. (2015). Structural Adjustment and Unemployment in Selected Eurozone Countries. Australian Economic Review, 48(2), pp.113-121.

Coleman, J. (2000). The global aspects of unemployment. European Business Review, 12(4).

Economywatch.com, (2015). Australia Unemployment | Economy Watch. [online] Available at: http://www.economywatch.com/unemployment/countries/australia.html [Accessed 3 Sep. 2015].

Ek, S. and Holmlund, B. (2014). Part-time unemployment and optimal unemployment insurance. International Tax and Public Finance, 22(2), pp.201-223.

Hubbard, R., O'Brien, A. and Sharma, A. (2012). Macroeconomics. Harlow: Pearson.

Inequality and Unemployment in a Global Economy. (2010). Econometrica, 78(4), pp.1239-1283.

Koutentakis, F. (2014). Gender Unemployment Dynamics: Evidence from Ten Advanced Economies. Labour, 29(1), pp.15-31.

Lane Chet, C. (2005). Work and Unemployment in the Global Labor Market.Anthropology News, 46(3), pp.21-21.

Mankiw, N. (2012). Macroeconomics. New York: Worth.

McTaggart, D., Findlay, C. and Parkin, M. (2012). Macroeconomics. Frenchs Forest, N.S.W.: Pearson.

McTaggart, D., Findlay, C. and Parkin, M. (2012). Macroeconomics. Frenchs Forest, N.S.W.: Pearson.

Ozkan, U. (2013). Translating travelling ideas: The introduction of unemployment insurance in Turkey. Global Social Policy, 13(3), pp.239-260.

Sedghi, A. (2015). Global unemployment forecast to hit 212m – country by country breakdown. [online] the Guardian. Available at: http://www.theguardian.com/news/datablog/2015/jan/20/global-unemployment-forecast-to-hit-212m-country-by-country-breakdown [Accessed 3 Sep. 2015].

Smith, R. and Zoega, G. (2007). Global unemployment shocks. Economics Letters, 94(3), pp.433-438.

Stater, M. and Wenger, J. (2015). The Immediate Hardship of Unemployment: Evidence from the US Unemployment Insurance System. Eastern Economic Journal.

Statista.com, (2015). [online] Available at: http://www.statista.com/graphic/1/266414/unemployed-persons-worldwide.jpg [Accessed 3 Sep. 2015].

the Guardian, (2015). Australia unemployment and employment statistics | Business | The Guardian. [online] Available at: http://www.theguardian.com/business/unemployment-and-employment-statistics-australia [Accessed 3 Sep. 2015].

THE TEENAGE DREAM UNRAVELS TRENDS IN YOUTH UNEMPLOYMENT. (2015). 1st ed. [ebook] Available at: http://www.bsl.org.au/fileadmin/user_upload/files/campaign/The_teenage_dream_unravels_trends_in_unemployment_MAR2015.pdf [Accessed 3 Sep. 2015].

Tradingeconomics.com, (2015). Australia Labor Force Participation Rate | 1978-2015 | Data | Chart. [online] Available at: http://www.tradingeconomics.com/australia/labor-force-participation-rate [Accessed 3 Sep. 2015].

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