Unemployment HSC Notes

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Labour Force: Consists of all the employed and unemployed persons in the country at any given time. Also known as the work force

  • Persons aged 15 +, currently employed  at least one hour/week
  • Self-employed people who work for at least one hour/week in their own firm/business
  • Unemployed people over 15 and actively looking for work
  • Australia : 11.5 million

Participation Rate:  Percentage o working population (15+) in the labour force, that is employed or unemployed

Unemployment: A situations where individuals want to work but are unable to find a job and as a result labour resources in an economy are not fully utilised.

Underemployment: refers to those persons who are working less than full time but would like to work more hours

Hidden U/E: refers to these people who cannot be considered unemployed but don’t fit the official definition of unemployment and are not reflected in unemployment statistics → discouraged from seeking job

Underutilisation rate: N0 persons actively looking for work + people able to → 1 week< start work <4 weeks. In 2009 = 13.4%

Types of Unemployment

Structural: occurs due to structural changes within the economy caused by changes in technology or the pattern of demand for goods and services

Cyclical: occurs due to a down turn in the level of economic activity, and falls during times of strong economic growth. As AD ↓ leads to less employment opportunities. Most of Australia’s long term unemployment is cyclical.

 Frictional: people who are temporarily unemployed as they change jobs – they finished one job and not started another. This occurs as it takes time to switch jobs. During the changeover period such individuals are regarded as being frictionally unemployed.  

Seasonal: Occurs at predictable and regular times throughout the year because of the seasonal nature of some kinds of work e.g. fruit picker or mall Santa

Long-Term: referring to those people who have been out of work dor more than 12 months → usually as a result of structural changes. They find it difficult to re enter workforce:

  • New entrants to work force have more up to date skills
  • Long term unemployed loss their skills
  • They have lost enthusiasm to re enter the workforce
  • Employers look less favourable on those who have been out of work for long periods.

Hardcore: Long term unemployed who may be considered as unemployable because of their personal circumstances → from mental/physical disability to drug abuse and anti-social behaviour, not counted in U/E statistics.

Impacts of unemployment


  • Opportunity costs:
  • Unemployment means  economy’s resources are underutilised
  • Hence economy is operating below its production possibility frontier
  •  Total output < potential total output
  • Lower total output  lower household incomes  less expenditure  lower sales and profits
  • Higher U/E  reduced business investment, production and employment (some cases business failure)
  • Lower living standards:
  • Unemployed people rely on income support payments  but do not contribute to the production process.
  • Hence employed people shoulder greater burden/costs  long run: lead to reduction in an economy’s living standards
  • High U/E rates  production of both consumer goods and capital goods is lower
  • Reduced production  reduction in economic growth rate  reduced standards of living standards
  • Decline in labour market skills for the long term unemployed:
  • Unemployment  loss of skill if unemployed for a long time
  • Persistent high U/E  unemployed persons will lose their labour market skills, self esteem and experience  less employable or even unemployable
  • Cyclical and short term unemployment  turns into long term structural unemployment.  Known as Hysteresis (whereby the unemployment in the current period results in the persistence of unemployment in future periods as unemployed people can lose their skills, job contracts and motivation to work)
  • New members to workforce will not develop labour skills if they are unable to obtain jobs soon after leaving educational institution
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  • Costs to the government:
  • High U/E  significant impact on government revenue and expenditure
  • Falling incomes due to unemployment  less tax revenue
  • Government forced to pay more transfer payments e.g. unemployment benefits + funding training and labour market programs
  • Hence decrease in revenue and increase in expenditure will cause a deterioration in government’s budget balance
  • Lower wage growth:
  • High levels of unemployment mean that there is an excess supply of labour  fall in equilibrium level of wages.
  • If regulations are imposed to restrict the downward flexibility of wages, higher unemployment ...

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