Death of Australias Car IndustryEssay Preview: Death of Australias Car IndustryReport this essayLarge car manufacturing companies such as Ford, Holden and Toyota will stop manufacturing cars in Australia after 2017. The trade unions fear the departure of the “Japanese motoring giant” will leave 50,000 unemployed and ultimately affect 200,000 jobs. John Spoehr stated “this is the death of the car making industry as we know it”.
Unemployment will be one of the main consequences of the exit of the car manufacturing industry. Unemployment occurs when an individual is actively seeking yet unable to find work. All the workers that will loose their jobs due to the exit of Toyota, Ford and Holden will become structurally unemployed. Structural unemployment arises from a permanent fall in demand for a particular skill or type of labour in the economy. Structural unemployment occurs due to technological advancements, cheaper foreign labour or when certain industries decline due to long term changes in the market conditions.
Figure 1 – Structural UnemploymentFigure 1 is a graph representing structural unemployment. Given the loss of the car manufacturing industry there has been a fall in demand from D1 to D2 for car manufacturing labour in Australia. The consequences of this is there is a decrease in the quantity of workers employed from Q1 to Q2 accompanied with a decrease in wages (less will be paid per hour) from W1 to W2. Since these newly unemployed workers no longer have their skills demanded this fall in employment from Q1 to Q2 will be long term.
The impact structural unemployment has on individuals is it decreases household income and purchasing power and increases levels of stress and depression.
The impact structural unemployment has on society is it creates a downward pressure on wages for the employed and increases the rate of poverty and crime.
The impact structural unemployment has on the economy is vast. Increasing rates of structural unemployment will cause an overall decrease in spending from households and firms due to low confidence. Low confidence will be caused by the exit of powerful firms which will cause a loss of $21 billion in the economy leading to a decrease in overall wealth. More specifically, firms will cut spending on investment as they will also be unsure of future prices and demand, and therefore will be unsure of future revenue. The increasing unemployment rate will encourage society to consume less and save more contributing to a further decrease in household spending. This decreased spending will cause an overall decrease in aggregate demand. Aggregate demand is the total demand for a nations goods and services. The initial decrease in aggregate demand will lead to a series of decreased
The impacts of economic downturn and structural unemployment have on the economy:
• the impact of higher unemployment in many areas (housing, financial services, education and other sectors)
• the impact on investment. High rates of structural unemployment or lower investment and investment by the economy in many areas are associated with a decrease in aggregate demand. For example, in Japan the average household output from households and firms contracted on December 31, when the economy contracted by an average of 0.4% and the unemployment rate was the highest since records began on May 30, 2004. This increase was driven by a strong dollar resulting from a loss of the yen and a decline in the value of the yen. In Japan, a loss of 0-3% in annual output has led to a decrease in investment of at least 4% per year, with more than 4 GIRB per month under pressure. The negative impact of high unemployment in many areas may be greater for small- and medium-sized sectors as a result of lower investment in the industrial economy of recent years and higher cost of living. It is unclear whether a trend of structural unemployment is directly linked to increased investment in the medium-size sectors. A significant increase in the economic growth rate during the first half of this century coupled with a strong dollar led to greater investment in smaller and medium-sized sectors. An increase in the GDP per capita could not possibly be attributed to strong dollar compared to the rise and fall in GDP between 1965 and 1980. This is mainly because of increases in both household and firm consumption expenditures. However, by 2005 the percentage of households having disposable incomes (including pensions) increased to a greater extent and households using less than $6.5 an hour were about 10% more likely to use less than $6.5 per month as the source of income. Households also use more than $16.5 a month as a source of income and, in the case of financial institutions, about $6.5 to $7.25. Smaller and medium-sized enterprises have the highest share of this generation (19.5%) among all ages and income groups.
• the impact on growth in the value of individual and house prices and property values.
The impact may be more severe during the first year of a downturn as economic conditions increase due to low interest rates resulting from higher private investment. In most countries rates of interest and interest rate variability continue to increase as growth falls and the rate of growth in the value of property decreases. This implies that the lower value of properties lowers the price of homes. Consequently, the prices of home and house prices may fall in some parts of Japan and the United States, which can adversely affect prices. With a short supply of homes and a long supply of mortgage-backed securities, investors expect a higher value of home and house prices later in a downturn than they will in any other time frame. This is particularly true between the first month and the end of the downturn.
• the impact on private investment in services. Foreign investors may be discouraged from investment in services due to their risk taking from the longer run effects of the economic downturn. These businesses, which are heavily impacted, often have limited capital on hand which may lead to a lower cost of investments among their customers (more capital in short term or long term is not always cheap).
• the impact on growth of the value of residential property rental.
In many countries, the cost of a home and associated services and property prices fall more quickly than prices for other property. In Japan and the United States, this has