This tutorial was written by
Head Teacher Social Science
Cardiff High School
HSC Topic Three: Economic Issues is covered in the Board of Studies NSW Stage 6 Economics Syllabus (1999) on pages 37-39. The specific outcomes for this tutorial are:
|H1||demonstrates understanding of economic terms, concepts and relationships|
|H2||analyses the economic role of individuals, firms, institutions and governments|
|H4||analyses the impact of global markets on the Australian and global economies|
|H7||evaluates the consequences of contemporary economic problems and issues on individuals, firms and governments|
|H11||applies mathematical concepts in economic contexts.|
Students of Economics need to be aware of what is happening in the Australian Economy today and should, for instance, be aware of current employment statistics. There is an excellent web link to the Australian Bureau of Statistics in the section MORE on the bottom of this page - which contains a wealth of information.
During the 1980's and 1990's unemployment was one of Australia’s long term economic problems. The level of unemployment rose to 7% in January 2002. By the mid 2000’s the unemployment rate fell to very low levels as the Australian economy boomed and economic growth was high. By 2006 the unemployment rate had fallen to 5.1%. This was its lowest level since 1976. During 2007 and 2008 the unemployment rate fell below 5% and fell to just above 4%. The slowdown in growth in the Australian economy and the global recession caused an increase in unemployment and by July 2009, the unemployment rate had risen to 5.8%.
The growth of jobs in the labour market is closely linked to the level of economic activity (aggregate demand) in the economy.
The downturn in the US economy and global economies during 2007, 2008 and 2009 affected Australian exports, economic growth and projected unemployment levels.
Measuring the labour force
The Australian Bureau of Statistics (ABS) defines the labour force or workforce as people aged 15 years and over who are employed in full or part-time work and those who are actively seeking employment.
People who are not in the labour force include full-time students, people who perform domestic duties, people who have retired and unemployed persons not actively seeking employment.
Table 1 The Australian labour force, 2000 - 2007
|Full-time Employed Persons||Part-time Employed Persons||Unemployed persons||Labour force|
|2000 - 01||6 691 200||2 438 700||625 500||9 755 400|
|June 2002||6 612 800||2 726 700||624 400||??????|
|2002 - 03||6,706.0||2,683.4||614.4||10,003.8|
|2003 - 04||6,844.3||2,712.1||572.7||10,129.0|
|004 - 05||7,038.5||2,787.9||540.5||10,366.8|
|2005 - 06||7,182.6||2,881.7||527.1||10,591.5|
|2006 - 07||7,393.3||2,941.2||489.0||10,823.5|
Using the information from Table 1, the labour force can be calculated using the following relationships.
You will notice that
the labour force figure is missing for June
Test your skills and complete the first question in review activity two.
The labour force participation rate
The size of the labour force is influenced by a number of factors including the age and distribution of the population, migration and participation rates. In January 2010, the population of Australia was 22.14 million, with a working age population of 14.9 million.
The labour force participation rate (LFPR) is the labour force expressed as a percentage of the working age population (civilian population aged 15 years and over).
Table 2 indicates the participation rates for males, females and all persons. One significant feature in the table is the difference in the participation rate between males and females.
Table 2 Australian labour force participation rates, 1993 - 07
|Year||Persons||Males||Females||Population Aged 15 year plus|
|1992 - 93||62.6||73.9||51.7||13 691 000|
|1993 - 94||62.7||73.6||52.2||13 853 500|
|1994 - 95||63.3||73.7||53.2||14 031 600|
|1995 - 96||63.6||73.8||53.8||14 242 600|
|1996 - 97||63.4||73.4||53.8||14 455 300|
|1997 - 98||63.1||72.9||53.6||14 664 800|
|1998 - 99||63.1||72.8||53.8||14 879 000|
|1999 - 00||63.4||72.5||54.5||15 106 900|
|2000 - 01||63.7||72.5||55.1||15 317 400|
|June 2002||63.8||72.3||55.5||15 626 700|
|2002 - 03||63.6||71.6||55.8||15,738.7|
|2003 - 04||63.4||71.4||55.5||15,986.9|
|2004 - 05||63.9||71.7||56.3||16,227.3|
|2005 - 06||64.4||72.0||57.1||16,441.4|
|2006 - 07||64.8||72.2||57.6||16,696.8|
There are a number of factors that can affect the participation rate. The most important is the level of economic activity. In a recession, when job vacancies decrease, the participation rate falls as workers become disillusioned and give up seeking work. For example, in 1992-93 the participation rate fell to 62.6% as the unemployment rate increased to 11%. During the economic boom and high growth years of 2006-2007 the participation rate rose to 64.8%, but recession meant that by January 2010 it had fallen to 65.2%.
There are a number of other factors that can affect the participation rate, including the number of students staying at school after reaching 15 years of age, the number married women seeking employment, or by people retiring from employment at an older age.
The rate of unemployment
To determine the rate of unemployment the ABS conducts regular surveys of the labour force. The unemployed are persons aged 15 years and over who are not employed during the survey week, or who have actively looked for work in the four week period leading up to the survey week.
The rate of unemployment is then the percentage of the labour force that are actively seeking employment.
To help the government develop effective microeconomic and macroeconomic policies for reducing the level of unemployment, it is useful to distinguish between the various types of unemployment. These are outlined as follows.
Graph 1: Australia’s unemployment rate & LFPR
Source: RBA ChartPack
The level of unemployment is closely related to the business cycle and the level of aggregate demand. For example, during the economic expansion of the 2000s the unemployment rate declined to 4.1% by 2008. However, with the onset of the GFC and recession, the unemployment rate increased to 5.8% by July 2009.
High labour costs have also caused problems in the labour market. If employers are faced with a situation where real wage levels are too high, they will substitute capital for labour, causing job losses. Lack of flexibility in the labour market can have a similar effect. As production methods have changed due to competitive pressures of globalisation and new technologies, the labour market has become more flexible. For example, much production has moved to a ‘just in time’ focus of producing only enough goods and services to meet consumers needs, with no need to store inventory. As a result, demand for labour has changed, including more part time and flexible work arrangements. Successive changes to the industrial relations system beginning in the 1990s with the introduction of enterprise bargaining, through to the Work Choices system introduced by the Howard government, were designed to support a more flexible demand for labour. The experience of the 2008-9 downturn illustrated labour market flexibility under the Rudd Government’s Fair Work system, whereby jobs were saved via employer/employee agreements to reduce working hours.
Microeconomic reforms, structural changes and the introduction of new technologies altered the level of production and consumption in the manufacturing sector in the late 1980s and 1990s. The textile, clothing and footwear and motor vehicle industries were dramatically affected by these reforms and many jobs were lost. Governments need a range of measures to reduce structural unemployment, including assistance for job seekers provided by Job Services Australia.
Read the following extracts:
Tortoise Approach is Just the Job
The economy of the USA, underpinned by a technology-sector boom, was the envy of industrialised economies in the late 1990s. Over the period 1997 to 2000, economic growth in the USA averaged 4.3%, well above the longer-term average of about 3%. At the same time, growth in payrolls (employment) averaged 250,000 a month, when rates of around 120,000 were considered normal.
Strong jobs growth had the desirable effect of pushing the unemployment rate to a 30-year low of 3.9% in October 2000.
But this proved fleeting. A combination of higher interest rates and the bursting of the tech bubble pushed the US into recession in 2001. The effect was to reverse six years of progress in a mere 18 months, as the unemployment rate rose to 6%.
This would represent the smallest gap between US and Australian unemployment rates in more than 12 years. The last time Australia had a lower unemployment rate than the US was in March 1983. Now the weakness of the labour market is considered a key risk to economic recovery.
Most challenging global economic conditions since the Great Depression
The global economy is experiencing the worst recession since the Great Depression, which has dragged the Australian economy into recession.
Real GDP is expected to contract slightly in 2009-10. This contraction is expected to be milder than almost any other advanced economy. An economic recovery is expected to gather pace from early 2010. The downturn will impact significantly on jobs, with employment contracting over 2009-10, and gradually growing in late 2010.
Major economic parameters
The Hon Wayne Swan, Australian Treasurer, Australian Budget
Use the above three extracts to answer the following questions.
Select the correct answer for the following true or false questions. Rewrite the correct answer for those that are false.
|a) Cyclical unemployment occurs because of declining
levels of aggregate demand.
|b) The labour force is comprised of those who are in
work or are actively seeking work.
|c) The level of economic growth does not affect the
rate of unemployment.
|d) Structural unemployment can be caused by real
wages rising faster than productivity.
|e) The labour force participation rate is the
proportion of people looking for jobs.
|f) The rate of unemployment is the proportion of the
labour force actively seeking employment.
|g) A person who works less than two hours a week is
counted as unemployed.
|h) A recession will cause a rise in the participation
|i) The natural rate of unemployment only includes
|j) The long term unemployed are those people unemployed for more than twelve months.||True||False|
Review the Reserve Bank of Australia web site for media releases on economic management issues.
The Australian Bureau of Statistics. reviews unemployment figures each month. Access the web site and update the statistical information contained in the tutorial. For instance, if I click on the 'Labour Force' button on the left of the ABS home page I can see the following statistics for May 2009:
|Apr 2009||May 2009||Apr 09 to May 09||May 08 to May 09|
|Employed persons ('000)||10 789.3||10 788.1||-1.2||0.1%|
|Unemployed persons ('000)||638.0||654.9||16.9||39.8%|
|Unemployment rate (%)||5.6||5.7||0.1pts||1.6pts|
|Participation rate (%)||65.5||65.5||0.0pts||0.0pts|
|Employed persons ('000)||10 794.8||10 793.1||-1.7||0.3%|
|Unemployed persons ('000)||624.0||651.2||27.2||37.7%|
|Unemployment rate (%)||5.5||5.7||0.2pts||1.5pts|
|Participation rate (%)||65.4||65.5||0.1pts||0.1pts|
|Employed Persons||Unemployment Rate|