Economics - Fully employment
...nvolves a substantial increase in government spending, tax cuts and lower level of interest rates. Aggregate demand = Consumption + Investment + Government Expenditure Improving the level of aggregate demand and speeding the economy activity by: • The government would increase its spending substantial economy. • The government would lower interest rates thus more investing in the Australia economy • Tax cuts would give consumers more money to consume goods and services The expansionary macroeconomic policy was used during the recession in Australia during the early 1990s, when public spending initiatives were undertaken and the government ran successive budge deficits. The government would use monetary policy to ease interest rates from 18% in 1989 to a low of 4.75% in 1993; this act would increase business investment and consumer spending. Monetary policy is action by the Reserve Bank to influence the cost and supply of money and credit in the economy, in order to achieve the government’s policy objective. CHANGE IN - - - - > CHANGE IN - - - - > CHANGE IN MONEY SUPPLY - - - > INTEREST RATE - - - > INVESTMENT Monetary policy was successful in reducing the cyclical level for several years. Monetary policy failed to reduce structural unemployment. Structural unemployment Structural unemployment occurs because of structural changes within the economy caused by changes in technology or the pattern of demand for goods and services. After the 1993 recession, the unemployment rate began to drop; strong economic growth had significantly reduced cyclical unemployment by 1995. Since the economic growth is the catalyst for structural unemployment by 2000 the Australian economy was situated with the problem of long-term unemployment, which is not solved by expansionary macroeconomic policy. Prime Minister Paul Keating at the time, attempted to attack structural unemployment with a WORKING NATION labour market policies. All these policies consisted with labour market assistance, apprenticeships and education and training programs in order to help the long-term unemployment regain and acquire new job skills and become employable again. This policy guaranteed a job for more then 6-12 months but not permanent. Plan to giver the long0term unemployed the skills and confidence to return to the work force. 1996 the Prime Minister John Howard found that WORKING NATION was ineffective and expensive that most people returned to structural unemployed at the end of there 6-12 month job. The Howard government focus on microeconomic and labour market reforms. It believes that long-term policies would improve Australia’s economic performance and create lasting jobs then the 6-12 months. The use of microeconomic policy would create a better competitive, efficient economy and allow a higher sustainable level of economic growth and thus a reduction in unemployment. The Howard government believe also that over-regulated and inflexible labour market and wage determination process is a reason for high unemployment. The government claim that restrictions block employers and employees to apply flexible workplace arrangements which maximise productivity. Microeconomic and labour market reforms are proven successful. JOB VACANCY AND UNEMPLOYMENT RATES, 1989/0 - 1999/0 Period Job Vacancy Rate % Unemployment% 1989-90 1.18 6.2 1990-91 0.67 8.4 1991-92 0.48 10.4 1992-93 0.54 11.0 1993-94 0.82 10.5 1994-95 1.11 8.9 1995-96 1.05 8.4 1996-97 1.09 8.6 1997-98 1.20 8.3 1998-99 1.17 7.6 1999-00 1.43 6.9 Since the use of microeconomic and labour market reforms has been used. A slow decline in unemployment can be seen from the diagram above from the Australian Bureau of Statistics. From 1996 we can see a dramatic decrease in unemployment of 2% and a larger increase of jobs available of 0.32%. GREATER FLEXIBILITY in the labour market Making a better wage determination process, also removing regulations that may discourage business from employing workers. The expansion of enterprise bargaining, reduction of the powers of unions, the introduction of individual employment contracts and the simplification of the award system are all intend to improve labour market flexibility. An introduction of Job Network of competin...