Types of Unemployment and their Causes

Question:

Discuss About The Melbourne Institute Applied Economic Social?

In the labor force, when some members are unable to find jobs to sustain their lives then they are identified as unemployed person in the economy. Those who remain unemployed are not for same reason. When people are willing to work but are not able to find in the prevailing market wage then it is called involuntary unemployment. Sometimes, people remain unemployed by their choice. This type of unemployment is named as voluntary unemployment. State of unemployment depends on the health of the economy. In times of economic boom, more jobs are created and hence unemployment is low. At times of recession or depression, the economy contracts due to declining aggregate demand. During this time, many people lose their jobs, contributing to unemployment.

Australia has gone through rapid economic development with changing scenario and scope of the economy. Dependence of the economy has increased on the service sector while growth in primary and manufacturing sector is comparatively declined limiting job opportunities. New job opportunities are opening up in a wide variety of services. Service including health, hospitality and education are accounted for maximum number of job creation. In agriculture, the adaption of advanced technology contributes to reduction in labor employment. Manufacturing sectors as well has a tendency of adapting labor saving technology to reduce production cost. Another factor responsible for job loss in Australia is the growing competition with imported manufacturing.

In this essay unemployment trend in Australia for the last five years are analyzed. In Australia, some common types of unemployment are structural unemployment, cyclical unemployment and frictional unemployment. When unemployment continued for a comparatively long period then it is called long-term unemployment. The overall scenario of unemployment is viewed in light of its impact on the economy and consequent government policies to mitigate unemployment and move towards ensuring a full employment condition.

Based on the influencing factors unemployment in an economy are of different types such as seasonal unemployment, cyclical unemployment, Structural unemployment, frictional unemployment and disguised unemployment. Seasonal unemployment is found occupation that largely dependent on seasons (Goodwin et al., 2013). For example, in agriculture there is a certain crop cycle including specific time. After completion of the crop cycle, farmers depending on only one seasonal crop, faces seasonal unemployment. Cyclical unemployment is inevitable for an economy. Every economy has gone through business cycle fluctuation. In recession or depression phase the economy contracts leading to contraction to economic activities and hence contraction of employment opportunities. The unemployment resulted from business cycle fluctuation is called cyclical unemployment. In order to make economic progress, major structural changes often take place. Labor force unable to adapt such changes loses their jobs during this time.  Some industry often considers revising production technology. Laborers lacking sufficient skill become unemployed. Frictional unemployment is unemployment at times of switching from one type of jobs to other (Davar 2016). This arises because of economic bottlenecks. Disguised unemployment is a situation where a person engages in jobs without making any marginal contribution. This means withdrawing this person does not make any change in total output.

Factors Affecting Unemployment in Australia

Shutdowns of Industry: An obvious factor leading to unemployment in Australia is shutdown of many supporting industries. Those who lose jobs in this phase are not fully absorbed because of insufficiency in job opportunities (Argy and Nevile 2016). These industries include textile, agriculture, manufacturing like automotive and so on.

Infrastructure: In the infrastructure, sector public and private spending declined in harder tomes for the economy. This resulted moving out of people having skills like engineers moves to overseas causing unemployment to local laborers.

Off shoring: Off shoring is a major contributor of unemployment in Australia. This began from when government stated offering incentives in terms of tax payment because of moving industries or jobs there (Mavromaras, Sloane and Wei 2015). Mostly manufacturing and textile jobs are going off shore.

Recession: In time of recession, companies adapt tightening policies where worker are lay off from their current jobs leading to unemployment in the economy.

Immigration: Australian government allows immigration of mining laborers and international students (Carvalho 2015). This increases the strength of the labor force while contributing to unemployment for local laborers.

Figure 1: Trends in Australian Unemployment in last five years

(Source: tradingeconomics.com)

The current rate of unemployment in Australia is 5.6%. The unemployment rate remains steady and same with in the earlier month. The statistics for new job creation is Australia is 54,200 (McLachlan 2013). As against the new job creation, the number of unemployed declined is only 1,100. Labor force participation rate has increased slightly. Recent participation rate for labor force is 65.3. In the previous year, this figure was 65.1 percent. The labor-force participation rate attained highest level since 2012 and reached beyond expectation. Employment in the economy jumped from 54,200 to 12,269,000 (Wilkins and Wooden 2014). This is considered as the biggest achievement in terms of employment creation. The employment estimate for the period was 15,000.  Both full time and part time employment in Australia increases. Increases in part time employment is greater than that of full time employment. Full time jobs increased from 40,100 to 8,392,300. Employment in part time jobs increases from 14,100 to 3,876,700.

Overall unemployment decreases by 1,100 to 727500. People are more interested in full time jobs than in the part time jobs because of greater job security.  Number of people searching for full time jobs increases by 6,400 from 501600. People looking only for part time jobs have decreased by 7,500 (Hawthorne 2016). Dependency ratio that is ratio of employment to population shows an improvement and becomes 61.6 percent from 61.4 percent.

Current Employment Rate in Australia

Condition of labor market strengthens in the last few years. In 2016, level of employment in the economy has increased by 1.9 percent. This is above the rate of average growth since the last ten years. Employment growth though accelerated in the second half of 2015, the growth slows down in the first quarter of 2016 (Furlong 2016).

The growth in employment between June 2015 and June 2016 was basically driven by high growth of part time employment. The part time employment grew by 3.7 percent and became 3,740,000 in 2016. There is a modest rate of growth of 1.1 percent for the same period.   Increase in part time jobs is reflected in the increases in monthly hours worked.

The level of unemployment in Australia fell by 3.1 percent. Unemployment rate declined from 6.1 percent in 2015 to 5.8 percent in 2016. The improvement in unemployment rate shows shift towards traditional labor-intensive technology. The growth is mostly in service-based industries. New employment opportunities are created in 12 out of 19 major category industries (Boz, Durdu and Li 2015). Large increase is observed in social assistance, health care, retail trade and construction.

In contrast to employment creation in retail trade, the whole trade experiences a decline in employment. Similarly, technical and scientific services and manufacturing employment declined. The mining sector has experienced a modest rate of growth in employment. the modest rate of growth in mining employment is viewed is terms of massive declining in mining sector employment from August 2012.  During 2012, depressed mining employment was resulted from decreasing commodity prices and shifting away from labor-intensive phase of construction to the production phase. In between this, the position of youth employment has improved for the given period.  There is a marginal decline in youth unemployment rate (Martin, 2014). The concerning fact is that, though youth employment has increased it is increased mostly in part time jobs. The full time employment for youth members of the labor force declines over the same period.  The declining statistics of full time employment among youth goes in line with the fact that full time education among the youth increases by 52.4 percent reaching a recorded a high level.

Although labor market condition strengthens, however several risk to the labor market remains. The prospective risk is associated in terms of further possibility of China’s growth. The China’s economy is shifted ways from investment driven growth. In Australia, there remains uncertainty in the commodity market with commodity prices have fallen to a significant low level in contrast to the recorded hike in 2011. In 2016, the Treasury forecasted fiscal and pre election economic outlook to increase employment by 1.75 percent over the period 2016-17 and 2017-18 (Wilkins 2015).  With this, the expected unemployment should decline to a moderate level of 5.5 percent and stay consistent at that level in the next period as well.

Possible Risks to Australia’s Labor Market

Participation rate in the labor force is defined as the proportion of population currently in the working age that is actively participating in the labor force and either involved in any kind of jobs or looking for jobs. It is considered as a good indicator to find out strength of the labor force. However, part of the labor force, that is not actively looking for jobs are is excluded from this measure. They are the discouraged job seekers.

Employment to population ratio measures the only those groups of working age population that are actively employed. Both the demand and supply side factors influence this ratio. It stands as a good summary indicator for presenting labor market performance of Australia in comparison to other countries specially the members in OECD list.

Overtime, the ratio of employment to population increases in Australia. The ratio has become 72.4 percent in 2016 (employment.gov.au 2017).  The ratio of workforce age to population has increased slightly and become 77.0 percent.

Figure 2: Labor force participation rate and employment-to-population ratio

(Source: employment.gov.au 2017)

The disparity between male and female participation in the labor force has narrowed overtime. In recent time, the gap is filled by 11-percentage point, moving Australia closer towards achieving a G20 goal of reduction in males and females disparity in the workforce by 25 percent within 2025 (Burke and Dundas 2015). Obviously, the gap has been narrowed because of a rise in female participation rate and decline in the male participation rate. Participation rate for females increased by 0.6 percentage point and achieved the level of 71.7 percent. As against female participation, participation of male members in the labor force decreased by 0.5 percentage point. The higher growth in female participation rate is partly contributed from the growth o industries hiring a larger proportion of women at times Australia transition towards to broad spectrum of economic growth from earlier resource intensive phase.

Figure 3: Labor force participation rate of males and females aged 15 to 64 years

(Source: employment.gov.au 2017)

Figure 4: Unemployment in different states of Australia

(Source: abs.gov.au 2017)

As per report of Australia Bureau of Labor Statistics, rate of unemployment declined in New South Wales, Queensland, Tasmania and South Australia. In 2015, Victoria recorded an increase in the trend unemployment rate and becomes 6.2% (businessinsider.com.au 2017). In Northern Capital Territory, unemployment rose to 4.9% while in Western Australia unemployment rate decreases or remains steady to 6.1 percent. In Australian Capital Territory, unemployment rate increases by 0.2 percentage point. In the phase of mining boom in 2005, Western Australia accounted lowest unemployment rate (Measham et al. 2013). Queensland and South Australia depending highly on mining experienced a decline in the unemployment rate. At that time, New South Wales presently having lowest rate of unemployment, then had a relatively high level of unemployment.

Moving to another five years, one year ahead of the beginning of the financial crisis, major states except Western Australia had unemployment rate ranging from 5.1% to 5.4%.  During this time, Western Australia was in an early stage of Mining Boom “Mark II”. China’s announcement of Infrastructure rollout program helps Western Australia still to have a lowest rate of unemployment with rat of unemployment being 4.5 percent (Gleeson 2015).

The current trend of unemployment began from September 2014.  The lower value of Australian dollar helps states mostly depended on the service sector to lower unemployment rate. The construction of residential housing also accelerated in this time and unemployment in New South Wales remains at 5.9%. Unemployment in Victoria fell rapidly from 6.7% to 6.2 percent in just one year. Tasmania, that had highest unemployment rate of 7.2% , achieved an unemployment rate of  6.0%.

The states relying on service sectors while experienced a decline in the unemployment rate, while mining sector dependent did not. The economy of South Australia and Western Australia mostly aligned with growth of mining sector accounted unemployment rate of 6.8% and 5.1% respectively. The capital expenditure in mining sector declined significantly and commodity prices lowered. The unemployment rate in Queensland was 6.4%. Reforms in the tourism sector can be considered as an offsetting factor.

The economy has planned for a successful transition from resource intensive growth objective to one that is fuelled by housing construction and consumption. However, the transition is still in its initial level and need some years to complete and prospect of having a changing employment and economic outlook.

Unemployment has destructive effect on people’s lives. Not only he unemployed person but also the family, community and the economy is affected from the steady unemployment state. The effect can trickle down to the next generation. Unemployment means a loss of scarce productive resources of the economy. Those who lose their jobs unwillingly lack sufficient resources to support their retire life.  The impact on society is in terms of increases in income support program, increasing social cost for health and community support and reduction in the availability of human capital for productive growth.

The Treasury pointed out that, the short term impact of unemployment is the reduction in the flow of personal while in the long run its results in inability of the people to save for future. Mission Australia recorded of having clients unable to afford clothes for interview, transport or telephone to interviews. Lacks of relaxation of council rates for unemployed persons often results in council debts among job seekers. As indicated by the Treasury, income support given to unemployed constitutes only one third of net wages. The replacement rate is lower than that prevailing in most OECD countries under social insurance system (Junankar 2016). It is found that unemployment has more severe impact on those having financial commitments such as rent or mortgages, education expenses of students and is liable to more number of dependents. Department of Family and Community Services (DFaCS) possess a long-term concern for persistent unemployment. The mature aged people tend to be more dependent on income support extended too them. Existing unemployment impacted on Federal budget through a lower generation of  present and future tax receipts by increasing spending on superannuation and other unemployment benefits (Morris and Wilson 2014). Larger the proportion of unemployed in a society, greater is the need for spending on education, health and other kinds of social service.

Different programs and policies are undertaken by the Australian government to reduce existing unemployment and attain a state of full employment for the economy. Different programs for combating unemployment are discussed as follows

Indigenous Employment Program (IEP) (1999- Current): Major objectives of this scheme are to provide wage assistance, arrange employment and training program, undertaking indigenous Cadetship Projects and  establishing Indigenous Employment Centers. Other assistances are providing in terms of corporate leadership in Indigenous Employment Project, building funds for indigenous small business and voluntary services are given to indigenous communities (Gregory and Smith 2016). The IEP has attempted to boost employment in the private sector.

In 2009, a range of changes was undertaken in IEP. It includes assistance to voluntary mobility; program corresponds to literacy and language, extending more support to the small and medium sized business enterprises, monitoring and pre-employment training program with special focus on regional industries and areas running with a shortage of labor. 

Job Service Australia (2009): This program replaced earlier Job Network program and has become primary employment program in Australia. This change is made in an attempt to improve the relation between apprenticeship and assistance given to labor market, improves in vocational education in training programs with a subsequent improvement in training and employment program in different states and territory (Argy and Nevile, 2016).  It concentrates more on the group of job seekers who are at a disadvantageous position than earlier Job network program.

Community Development Program (CDP): It is a centrally controlled program. It involves strict penalties because of any non-compliance and aims to provide more working hours (Dowding and Martin 2017). Adaption of this policy results in substantial increase in penalties and financial hurdles for many participants.

In 2017, Australian senate launches an inquiry into CDP. The need for inquiry arises because of concerns regarding the program’s impact on individual, family members and in the broader community. There are concerns from Job Australia that CDP is responsible in creating unwanted financial hardship and ends up with poverty in remote areas of Australia.

Conclusion

The essay discusses trends of unemployment in Australia in the last five years. The trend shows that Australia has made significant improvement in combating unemployment. New jobs are created in Australia contributing to declining trend in unemployment. Proportion of people engaged in part time jobs offsets that in full time jobs. Youth members of labor force are more likely to engage in part time jobs with an increased tendency towards full time education. The ratio of employment to population is improving with narrowing the gap between male and female employment. Coming to state wise distribution of unemployment, state with high dependence on mining sector experiences a rise in unemployment while those led by service sector experiences a decline in unemployment. Unemployment has social and economic impact. With increasing need for support program to help the unemployed imposes burden on federal budget. However, government of Australia has designed several policy programs to address the unemployment problem and moving towards full employment condition.

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