Unemployment Case Study

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UNEMPLOYMENT
Definition: Unemployment refers to a situation where individuals are willing and able to work but are unable to secure employment and therefore labor resources are underutilized.

Measurement of Labor Market Performance
The Labor Force Participation Rate refers to the percentage of the population aged 15 and over that is either employed or unemployed, and is currently 64.8%. Weaker demand for labor and below average wage growth has contributed to a cyclical ‘discouraged job seeker’ effect. Structurally, Australia’s ageing population and increased school retention rates are putting downward pressure on the participation rate, which is measured using the following formula:

Labor Force Participation Rate (%) = (Labor Force)/(Working
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A major criticism of this measure is its exclusion of hidden unemployment and underemployment. However, the ABS addresses spare capacity in the labor market through the calculation of the underutilization rate.

Trends and Current Statistic
During the 1990’s unemployment peaked at 11%, as cyclical unemployment rose during the recession. Unemployment fell to 4.2% prior to the GFC, reflecting the expansionary impact of the resources boom and structural reforms that boosted labor productivity. During the GFC global aggregate demand contracted as growth slowed to 1.3%, reducing the derived demand for labor. This increased cyclical unemployment, causing the unemployment rate to reach 5.8%. During 2009-10 the resource boom returned and economic growth rose to 2.3% reducing unemployment to 4.9% by 2010-11. However, the appreciation of the $A reduced the international competitiveness of Australia’s export sector. Structural adjustments led to further retrenchments in the manufacturing industry, as car dealerships such as Toyota, Holden and Ford, retrenched workers. Subsequently, in 2012-13 the unemployment rate rose to 5.7%. As the mining investment boom subsided from 2013-14, this upward trend in unemployment continued. In addition, the incidence of long-term unemployment has
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In response to the sudden and rapid fall in aggregate demand the RBA lowered the cash rate from 7.25% to 3%. The government delivered stimulus packages and bolstered confidence in financial markets through credit guaranteeing. This increased short-term liquidity and ensured financial institutions had access to funds to maintain lending in the medium term. In the short term government policy can be deemed effective as it had the desired effect of lowering unemployment to 5.2% by 2011, during a time when unemployment was above 10% in most OECD nations. Secretary to the Treasury, John Fraser argues Australia ‘avoided the increases in unemployment and substantial loss of productive capacity experienced by most other developed nations.’ However, the government failed to address structural weaknesses, leaving the Australian labor market vulnerable to external shocks. Consequently unemployment has surpassed its peak during the

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