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Discuss about the unemployment in australia in last 3 to 5 years.

Condition of Unemployment in Australia

Unemployment is one of the persistent phenomenons that every economy around the world faces over the time. Depending upon the various factors like economic growth rate, growth of industry, growth of population, rate of unemployment tends to fluctuate over time gradually (Schmieder, von Wachter and Bender 2016). Unemployment is such a phenomenon that pause the economic growth and influence the disposable income negatively. With higher rate of unemployment, income of the households tends to fall and the aggregate demand in the economy drops as well (Wiemers 2014). Reducing aggregate demand tends lower level of employment and the cycle continues until either government steps in to control the situation or the economy breaks down. Thus, with higher unemployment level, households fail to fulfil their requirements, leading the economy towards breakdown. Now, when it comes to Australian economy, then it can be seen that the economy has faced persistent effect of unemployment since 1984, when unemployment level was as high as 10% (Morris and Wilson 2014). Successive government plans has helped the country to reduce the magnitude of unemployment and presently the country is one of the developed nations that has unemployment rate less than world average of 6% (Argy and Nevile 2016).

This essay is meant to analyze the unemployment in Australia for last 5 years. Focus of the study will remain on the different conceptual types of unemployment in the country and find out what government has done so far in this last five years to control the effect of unemployment in the country’s economy. Moreover, the essay will discuss the various factors that have affected the Australian economy during last five years. Besides this, the study will highlight some recommendations to aid the economy to have the desired unemployment rate. To conclude, there will be a summarized overview of the Australian labour market and a summary of the study so far.

Australia is one of the stable western nations that possess a lower amount of unemployment as compared to the world average of 6%. With rise in Gross Domestic Products (GDP) and reduction in death rate has influenced the Australian economy to have lower amount of unemployment since 1970 (Hoffmann and Lemieux 2016). If the present unemployment condition of last five years can be observed, then it can easily be seen that unemployment level has dropped largely as compared to the 2009. According to the figure 1, it can be seen that unemployment rate was lowest during 2012, considering the values of last five years; however, it has crossed 6% during 2014 and 2015. One of the main reasons for this rise in unemployment was substantial easing of monetary policy since 2013.

Types of Unemployment in Australia

According to the general economic theory, there is a negative relationship between the unemployment and GDP growth rate (Gregg, Machin and Fernandez 2014). From table 1, it can be seen that Australian market promotes same picture and there has been substantial fall in unemployment due to rise in GDP growth. Correlation of -.900073354 determines strong negative relationship between the Australian GDP growth and unemployment rate. Thus, if the is any change in the GDP growth rate, then there will be a change in Australian labour market too (Andresen 2015).

Unemployment rate

GDP growth rate

Unemployment rate

1

GDP growth rate

-0.900073354

1

Table 1: Unemployment and GDP growth rate correlation

Source: (Created by Author)

Present situation of the Australian labour market can be seen from the figure 2, where growth rate of the country has been plotted with the unemployment rate. According to the difference between unemployment rate and GDP growth rate, from the diagram 2, it can be seen that, country had lowest unemployment rate and highest GDP during 2012 and highest unemployment and lowest GDP in 2015.

According to the figure 3, female unemployment level of Australia can be observed. It can be perceived from the diagram that female employment is dependable upon the total employment of the nation. As the total unemployment tends to fall, since 2015, female unemployment falls too. However, it is interesting to notice that female employment in the country goes by the line of total employment, providing the country a stable economic condition and better sustainability (Qi et al. 2015). Besides this, from the figure, it can also be observed that during 2014 to 2015, women unemployment has fall at a larger scale compared to the total employment.

According to the Keynesian theory, this much unemployment is good for the economy, because it brings in elasticity in the labour market. However, the level of unemployment is higher than 4% and it will affect the economy adversely (Keynes 2016). Thus, Australian government need to provide more focus on their fiscal and monetary policy combination that can effectively reduce the level of unemployment.

In the Australian market there are four different types of unemployment is present, which are seasonal unemployment, frictional unemployment, structural unemployment and the cyclical unemployment. Details regarding these various types of unemployment are as follows:

If the unemployment level varies depending upon the season, then it is known as the seasonal unemployment. For instance, if the employment is generated during a specific time of the year and vanishes once the season is over, then it is known as the season unemployment. In Australia, seasonal unemployment is moderate owing to the fact that it is one of the greatest tourist destinations (Bidargaddi et al. 2015). However, if the mining industry is considered, then it is the highest job-generating sector, thus, scope of seasonal unemployment is also not high.

Seasonal unemployment

According to the theory, when a job seeker searches for desired job for the first time, then the person may lack in the case of efficiency and fails to find suitable job. During this time, the person may be voluntarily unemployed and enhance the level of overall unemployment level in the country. This phenomenon can appear in case of the job seeker who is in search of new jobs and presently is under the transition period, where he is looking for new job (Carrere, Grujovic and Robert 2015). In the case of Australian labour market, frictional unemployment is lower, because the intermediary time for leaving a job and getting a new job is lower. Besides this, according to the Reserve Bank of Australia, frictional unemployment in the country’s economy is reducing, as the economy is moving out of recession and leading toward peak. Beveridge curve supports this phenomenon, according to RBA publication, which is moving inward displaying a better employment opportunity in the country (Jacobs and Rush 2015).

If there is a mismatch in the given job and the skills of the employee, then he or she remain abstain from working leading to higher overall unemployment rate. Various factors can lead to structural unemployment. For instance, if there is certain technological change or skilled labour is available, then structural unemployment may tend to increase (Restrepo 2015). Besides this, if the wage rate is lower than the desired amount, then structural unemployment may come into existence. When it comes to Australian economy, then the structural employment is lower in number. Due to lack of skill, scope of being fired is also low (Kahn 2015). Moreover, according to the RBA report inward shift of the Beveridge curve highlight that there is reduced number of cased of structural unemployment, as the Australian economy is moving towards peak.

When there is lack of aggregate demand, then employment tends to fall and it occurs in an economic cyclical process that differs depending upon the economic structure. For Australia, case of cyclical unemployment is much higher, compared to any other unemployment structure. The country has recently faced recession back in 2008 and 2012 and since then it is rising at a sustainable rate. With effective monetary policies and enhanced fiscal expenditure, the economy is expected to have better employment rate in coming years (Cuéllar-Martín, Martín-Román and Moral).

According to the Australian government, a little unemployment is good for the Australian economy, because it aids to maintain the elasticity in the labour market and achieve higher sustainability. Presently Australia has high wage tax leading to reduced disposable income and voluntary unemployment. Thus government has eased the restrictions on the part time work that has aided the economy to have overall higher employment count reducing the level of unemployment rate over time during 2012 to 2016 (Argy and Nevile 2016). Besides this Workplace Relations Act of 1996 has been reformed to achieve better relationship in working field and enhance higher level of interdependence that affects the employment of the country. Australian Workplace Agreements has helped the labours to draw higher wages from their employer and it has helped the economy to have lower rate of unemployment. Presently Australia stands second that pays highest amount of wage, however, compared to the developed nations, Australian labour wage is still low. Australian government has made significant changes in the labour market to bring in more clarity in the job network and has introduced Active Participation Model to enhance the employment level in the country. Besides this, it has been perceived by analyzing the recent fiscal and monetary reforms of the government that Australian government is focusing to reduce the unemployment level to the level of 2 to 3% with the aid of effective contractionary monetary policies (Carson and Kerr 2017). They are aimed to reduce the monetary ease that has been lasted for 18 months since 2013. This reform is aimed to reduce the liquidity in the money market and enhance the export rather than import.

Frictional unemployment

According the studies of Mavromaras, Sloane and Wei (2015) unemployment follows the economic cycle and financial condition of the economy is one of the main driving forces that control the unemployment level. If the economy is in recession stage, then the unemployment will be higher and when it tends to move towards the peak, then employment will rise, reducing the unemployment level. In order to study this, participation rate is one of the best indicators that clearly highlight the present labour market condition.

According to the figure 3, participation rate has been falling during 2012 to 2014 and it started to rise since then. Comparing these details with the figure 1 it can be seen that as the economy has faced reduction in participation rate, unemployment started to rise and with rise in participation rate back in 2014, unemployment started to fall. However, one interesting thing in this context need to be highlighted that, participation rate during 2015 onwards started to fall, however GDP growth was positive during this time. One of the major reasons for this phenomenon was rise in Australian population during this time (Gregory and Smith 2016). Besides this, immigration was another major reason that has lead to fall in participation rate and fall in employment leading to a positive relation between these two economic factors.

According to the table 2, participation has positive relation with the GDP, thus, if the economy tends to rise, then participation will also rise too.

Participation rate

GDP growth rate

Participation rate

1

GDP growth rate

0.728627912

1

Table 2: Participation rate v//s GDP growth rate

Source: (Created by Author)

With the help of labour participation data, it can be seen that Australian economy has varied level of unemployment over the period of 2012 to 2016 (Hawthorne 2016). Figure 4 shows that maximum unemployment reduction had taken place in Western Australia during 2013 and the major reason for this change was rise in aggregate demand and higher level of participation rate. Besides this, when it comes to Victoria, then during 2015 labour participation of this Australian state was lowest that lead to highest level of unemployment. Considering the unemployment trend of 2016, of the four major cities, it can be seen that, rate of unemployment is falling and if the trend continues, then it will soon be under the 5% level (Bonoli 2017).

Australian government has effectively reduced the unemployment rate compared to the level of 2013, and it is expected that if the present flow of government expenditure continues, then government can escalate it further to the natural rate of unemployment. According to the Australian government, they are aimed to produce 2 million jobs by 2030; however, present situation shows that there is instability in the labour market due to various internal and external factors. In this context, following are some recommendations for the Australian government:

  • Australian labour market lacks skilled labour. This has been restricting the market since 2012 to grab the mining boom originated from the Asian countries like China, Indian and other OECD countries. Thus, it is necessary for the Australian government to bring in skill enhancement program that will aid the economy to have higher numbers of skilled labours and enhance the productivity of the nation.
  • Another major issue with the Australian labour market is higher level of tax rate. Thus, government need to bring in tax reduction for the workers and provide higher amount of disposable income that can effectively enhance the goods and services of the country.
  • Most of the Australian labours are employed in the mining industry and any shock in the demand of the mining output can cause rise in unemployment. Thus Australian government need to diversify its business and find out new products and service in order to produce higher number of jobs.
  • Monetary policy of the government is tighter since 2014, leading to lower aggregate demand. Thus, government can reduce the interest rate and provide stimuli to the Australian economy that will enhance the job opportunity.

Structural unemployment

Conclusion:

Unemployment is one of the common phenomenons for the Australian economy that has varied over time due to various factors. The study has found that, economy has been facing rise in unemployment since 2012 due to lack of jobs and reduction in mining industry. However, government policies taken during 2014 to check the rise in unemployment have effectively reduced it. During 2016, the country has unemployment rate of 5.7% and the trend highlights that economy will face lower employment in coming years. According to the study, one of the major reasons for this reduced unemployment is rise in government expenditure that has effectively penetrated the economy, leading to higher number of job creation. The study has found that, Australian economy is presently structurally strong and if the predictions are true, then economy will reach to natural employment level by 2021. However, according to the study, major chunk of the unemployment has been originated for the structural and cyclical reasons. Slow growth of wage and unstable demand of mining industry are the main reason that has been causing the economy to face these types of unemployment. To conclude, it can be said that, demographic changes are going to play a major role in the coming years and if the government follows the present flow of public expenditure, then it will enhance the participation rate and escalate the present unemployment rate farther.

References:

Andresen, M.A., 2015. Unemployment, GDP, and crime: The importance of multiple measurements of the economy. Canadian Journal of Criminology and Criminal Justice, 57(1), pp.35-58.

Argy, V.E. and Nevile, J. eds., 2016. Inflation and Unemployment: Theory, Experience and Policy Making. Routledge.

Argy, V.E. and Nevile, J. eds., 2016. Inflation and Unemployment: Theory, Experience and Policy Making. Routledge.

Bidargaddi, N., Bastiampillai, T., Schrader, G., Adams, R., Piantadosi, C., Strobel, J., ... & Allison, S. (2015). Changes in monthly unemployment rates may predict changes in the number of psychiatric presentations to emergency services in South Australia. BMC emergency medicine, 15(1), 16.

Bonoli, G., 2017. Labour market and social protection reforms in international perspective: parallel or converging tracks?. Taylor & Francis.

Carrère, C., Grujovic, A. and Robert-Nicoud, F., 2015. Trade and frictional unemployment in the global economy.

Carson, E. and Kerr, L., 2017. Australian social policy and the human services. Cambridge University Press.

Cuéllar-Martín, J., Martín-Román, Á.L. and Moral, A., 2017. Natural and cyclical unemployment: a stochastic frontier decomposition and economic policy implications.

Gregg, P., Machin, S. and Fernández?Salgado, M., 2014. Real wages and unemployment in the big squeeze. The Economic Journal, 124(576), pp.408-432.

Gregory, R.G. and Smith, R.E., 2016. 15 Unemployment, Inflation and Job Creation Policies in Australia. Inflation and Unemployment: Theory, Experience and Policy Making, p.325.

Hawthorne, L., 2016. Labour market outcomes for migrant professionals: Canada and Australia compared.

Hoffmann, F. and Lemieux, T., 2016. Unemployment in the Great Recession: A Comparison of Germany, Canada, and the United States. Journal of Labor Economics, 34(S1), pp.S95-S139.

Jacobs, D. and Rush, A., 2015. Why is wage growth so low?. RBA Bulletin, June, pp.9-18.

Kahn, L.M., 2015. Skill shortages, mismatches, and structural unemployment: a symposium.

Keynes, J.M., 2016. General theory of employment, interest and money. Atlantic Publishers & Dist.

Mavromaras, K., Sloane, P. and Wei, Z., 2015. The scarring effects of unemployment, low pay and skills under-utilization in Australia compared. Applied economics, 47(23), pp.2413-2429.

Morris, A. and Wilson, S., 2014. Struggling on the Newstart unemployment benefit in Australia: The experience of a neoliberal form of employment assistance. The Economic and Labour Relations Review, 25(2), pp.202-221.

Qi, X., Hu, W., Page, A. and Tong, S., 2015. Associations between climate variability, unemployment and suicide in Australia: a multicity study. BMC psychiatry, 15(1), p.114.

Restrepo, P., 2015. Skill Mismatch and Structural Unemployment. Unpublished manuscript.

Schmieder, J.F., von Wachter, T. and Bender, S., 2016. The effect of unemployment benefits and nonemployment durations on wages. The American Economic Review, 106(3), pp.739-777.

Wiemers, E.E., 2014. The effect of unemployment on household composition and doubling up. Demography, 51(6), pp.2155-2178.

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