Unemployment and inflation - Australia
...ead to a rise in unemployment. >structural Structural unemployment results from a mismatch of labour skills with the job vacancies offered. Changes in manufacturing with the introduction of new technologies making jobs obsolete, whilst new jobs may be created in expanding industries such as catering and hospitality. A cause of structural unemployment in Australia has been microeconomic reforms in industry such as tariff cuts in manufacturing and reforms to the public trading enterprise. Structural changes in consumption and production can cause the level of structural unemployment to rise, as the introduction of new labour saving technology, leads to unemployment in these areas. Uncompetitive industries such as textiles, clothing and footwear and passenger motor vehicles have also been forced to reduce their work force as they r no longer as competitive due to the structural change of tariff and quotas introduced by the government. >frictional Frictional unemployment is caused by the movement between jobs or experiencing changing economic circumstances. This can be the movement from education to looking for jobs, people searching for better paid careers, people leaving and re-entering the work force after rearing children etc. Frictional unemployment is a result of normal labour market turnover and the imperfect flow of information between job seekers and employers in the labour market. The lack of efficiency in the labour market in matching skills with jobs will influence the level of frictional unemployment. Rigidities in the labour market like government or industrial regulations such as, superannuation, taxation, workersˇ¦ compensation, unfair dismissal legislation and award conditions. These can also diminish a companies willingness to employ, through higher costs of employment, leading to unemployment. >seasonal Seasonal unemployment is part of frictional unemployment but may be categorised separately since specific industries or occupations are characterised by seasonal work which may lead to unemployment in the off seasons. This may include farm harvesting or summer jobs such as Christmas retailing. >hidden Hidden or disguised unemployment refers to people who may not be counted as part of the official unemployment statistics because they have given up looking for work or are supported by a spouse and are therefore not eligible for job search allowance. The hidden unemployed are those people such as married women with children who would work if jobs were available and suitable child care facilities could be found. Such people are not classified as unemployed because they have not actively sought work in the previous four weeks of being surveyed. >long term Long term unemployment refers to those people unemployed for over 12 months. This may be due to a lack of skills, training, education or the motivation to find a secure suitable employment opportunities on labour market. Hard core unemployment usually refers to those people in the labour force experiencing chronic periods of unemployment or long term unemployment. These workers may face particular difficulties such as physical, mental or emotional problems, a criminal record, health problems such as drug or alcohol abuse, or attitude problems based on poor motivation or physical appearance. These will effect their ability of finding and holding a job. Natural rate of Unemployment Full employment is at the point where labour demands is equal to labour supplied, this point is called the natural rate of unemployment The natural rate of unemployment fluctuates because of changes in the levels of frictional and structural unemployment. Some workers will be unemployed because they are in between jobs and others because they lack necessary skills. Evidence shows Australiaˇ¦s natural rate of unemployment is somewhere between 5% and 7% of the workforce. The natural rate of unemployment may change over time. The natural rate of unemployment is also referred to as the Non Accelerating Inflation Rate of Unemployment (NAIRU) as it is that level of unemployment that remains after inflation is zero. Main Groups Affected by Unemployment Young and less educated labour force participants, recent immigrants and people whose last job was in a blue collar occupations account for disproportionately high shares of unemployment. Teenagers participating in the workforce experience the highest rates of unemployment. Due to the difficulty for a teenager to secure their first job because of the lack of experience, education, training and skills. Workers with low levels of education attainment also tent to experience higher rates of unemployment than those with higher levels of educational qualifications. These are shown by the statistics in 1998 that those males and females that did not complete high school had unemployment rates around 15% whereas those with degrees, diplomas, vocational qualification or had completed high school had unemployment rates around 7.3% in the same term. Unemployment also affects workers according to their occupation. Workers in semi-skilled or unskilled positions had unemployment rates of about 8.5% in 1998, relative to those of managers, professionals and trade persons having and unemployment rate of around 3% in the same term. Immigrants also experience variations in their unemployment rate according to their arrival times in Australia. Those who arrived between 1976-85 have an unemployment rate of 8.9%, those arriving 1986-95 having an unemployment rate of 12.1% compared to those most recent immigrants with a rate of 17%. Effects of Unemployment - Economic and Social costs The lose to the Real GDP as the economy is running below the natural rate of unemployment, so there is a lose to output and incomes, and national income will be reduced, along with living standards. The unemployed and all dependent on their income will suffer economic and social hardship due to a loss of market income and social stigma attached to being unemployed. Their levels of consumption will necessarily fall and their satisfaction from life will be less than for the employed. As opportunities and choices for spending and recreation are reduced for the unemployed and those dependent on their income. The longer a person is unemployed the more difficult it is for them to secure a job because they are less preferred to new workers by the employers for available jobs. The most negative feature of the higher unemployment rate resulting from the 1990-91 recession was the rising percentage of long term unemployed , reaching nearly 40% of the total unemployed. The unemployed are also likely to experience a loss of self esteem and dignity, which reduces their motivation to search for jobs or to undergo re-training and education to increase their skill level. This can lead to long term unemployment and dependence on government welfare for income support. There is and increasing tax burden brought about by unemployment placed on the employed as they are financing increasing social security payments from the taxation they pay to the government. The federal government will experience erosion of its tax base and a rise in cyclical expenditure on social security which could lead to a rise in a budget deficit or a fall in a budget surplus. Unemployment also leads to a less equal distribution of income as the unemployed are relying on income support from the welfare system and are concentrated disproportionately in the lowest decile of the distribution of household income. Unemployment can also can be considered to have a social cost of increasing social trends such as crime rates, increased drugs and alcohol dependency, health problems for the unemployed, higher suicide rates, family breakdowns and loss of self esteem and human dignity for the unemployed. Inflation Measurement Inflation refers to the sustained growth in the general price level over time. For the government to achieve price stability, inflation must be kept at or near zero. The price level is the average level of prices in the economy and is measured by a price index. It is measured by the following equation; Inflation = Current Inflation - Previous Inflation x 100 Rate Previous Inflation 1 In Australia the most commonly used price index is the consumer price index (CPI), which measures the price of a selected regimen of consumer goods and services over time. The rate of change in the CPI is measured quarterly and is known as the headline rate of inflation since it covers price movements in a selected regimen of household expenditure. The CPI regimen consists of eleven categories; food, clothing and footwear, housing, household equipment, transport, alcohol and tobacco, health, recreation, education, communication and miscellaneous. Each item is weighed in terms of its importance in averag...