Unemployment
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The objective of full employment is to have all of those in the economy who are able and willing to work, finding employment within the Australian economy. The labour force is made up of the employed and unemployed. The government considers that in order to be classified as employed you must be over 15 years of age, in paid employment, either full time part time or casual and working more then 1 hour a week. Those who are unemployed are considered to be individuals over 15 years of age and under 65 who are actively seeking employment of some type.
For the objective of full employment it is impossible to have zero unemployed so the government aims for the economy to be free of cyclical unemployment. Unemployment may result from a number of circumstances being cyclical which is caused by fluctuations in economic activity, seasonal due to the changes of seasons, frictional which is caused by people in between jobs, structural caused by changes in technology, corporate restructure or whose skills are obsolete and hardcore which occurs when people have been long term unemployed.
The most common measure of assessing the success of the government in achieving the objective of full employment is the unemployment rate, which is calculated by dividing the total number of unemployed by the labour force and multiplying it by 100. An alternative measure is the participation rate, which is measured by dividing the labour force by the population of people over the age of 15 and under 65.
There are many limitations to the unemployment statistics as surveying data can never be accurate for several reasons such as:
Surveying errors – with such a small sample of the population being surveyed the likelihood of an error is possible
Definitions are arbitrary – the definition to classify a person as employed or unemployed is some what unrealistic
Hidden Unemployment not recorded – those able to work but not willing or are discouraged to seek employment
False Information – Some people may be tempted to give false information when they are surveyed.
The government sets a target for full employment with the intention that 0% unemployment is not possible, hence it seeks to allow for a natural rate of unemployment within 5-6 % which consists of seasonal, frictional, structural and hardcore factors.
There are several demand and supply side factors that affect the level of unemployment. Some factors include the level of disposable income, which refers to the money available for spending by individuals after receiving government transfers and following the payment of personal tax. An increase in disposable income caused by possible decreases in disposable tax allows consumers to experience a rise in purchasing power as people have more money to spend. This results in an increase in consumption expenditure and due to an increase in demand organizations respond to the signals from consumers and as such will increase quantity supplied. This leads to companies employing more people to help increase production because the profit levels of businesses tend to rise which makes producers keener and more able to increase AS.
Another demand side factor affecting the rate of unemployment is consumer confidence, which relates to household expectations about future income, employment prospects and inflation. When consumer confidence is low people are less motivated to spend there money on goods and services because they have a negative sentiment towards economic conditions, resulting in the level of unemployment to increase. However when consumer confidence is high it has the reverse effect of unemployment.
Supply side conditions affecting the unemployment rate may be the profit levels of organizations. When profits increase organizations feel more confident about expansion, greater production etc all in aid of increasing capacity. In order to increase AS, more resources are needed and as such jobs are created.
An additional supply side factor is production costs. If production costs were to increase this will lead to an increase in the cost of sales and therefore companies require more dollars to produce the same amount goods. In order to cope with the increase in production costs employment opportunities and staff numbers will decrease causing the level of unemployment to increase, in particular structural unemployment.
In order to adequately assess if the government was or was not successful achieving its objective of full employment we must analyze how they have preformed over the past 10 years. On average the government has achieved an average unemployment level of 7.82%
During 1993/1994 Australia experienced high unemployment levels of 10.5%, growth of 4.1% and inflation of 1.8%. At this stage the Australian government had not achieved its target of 6-7% unemployment for full employment due to the recession in 1991/1992 and the fact that the economy had briefly begun its recovery.
From the period of 93 to 95/96 the unemployment rate fell from 10.5% to 8.5%, however given the government target of 6-7% this level of unemployment was still unacceptable. However, although the government did not achieve its objective of full employment there were several factors contributing to the fall in unemployment, in particular cyclical unemployment. The major contributing factors that caused this to occur were the relatively strong levels of growth, where CAD%GDP rose from 3.8% to 4.3%. Demand and Supply side factors such as interest rates fell from 5.27% in 92/93 to 4.77% in 93/94 causing business and consumer confidence to rapidly increase because both consumers and businesses were motivated to spend and invest more given there positive sentiment about economic conditions. An increase in disposable income also contributed to the levels of consumer confidence, which rose from 4.1% to 6%. This lead to consumers purchasing more goods and services as they had more money to spend and felt more optimistic about future economic conditions. This increase in spending by consumers also lead to an increase in business confidence as firms had to increase their production