Unemployment and Economic Impacts

This assignment requires students to analyze research papers examining the multifaceted impacts of unemployment on the economy. Topics covered include changes in unemployment rates, their influence on psychiatric services utilization, labor market reforms, skill shortages, wage growth, and the lasting effects of unemployment on individuals and households.

Running head: ECONOMICS FOR BUSINESS
Economics for business
Name of the student
Name of the University
Author note

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Introduction:
Unemployment is one of the persistent phenomenons that every economy around the
world faces over the time. Depending upon the various factors like economic growth rate, growth
of industry, growth of population, rate of unemployment tends to fluctuate over time gradually
(Schmieder, von Wachter and Bender 2016). Unemployment is such a phenomenon that pause
the economic growth and influence the disposable income negatively. With higher rate of
unemployment, income of the households tends to fall and the aggregate demand in the economy
drops as well (Wiemers 2014). Reducing aggregate demand tends lower level of employment
and the cycle continues until either government steps in to control the situation or the economy
breaks down. Thus, with higher unemployment level, households fail to fulfil their requirements,
leading the economy towards breakdown. Now, when it comes to Australian economy, then it
can be seen that the economy has faced persistent effect of unemployment since 1984, when
unemployment level was as high as 10% (Morris and Wilson 2014). Successive government
plans has helped the country to reduce the magnitude of unemployment and presently the country
is one of the developed nations that has unemployment rate less than world average of 6% (Argy
and Nevile 2016).
This essay is meant to analyze the unemployment in Australia for last 5 years. Focus of
the study will remain on the different conceptual types of unemployment in the country and find
out what government has done so far in this last five years to control the effect of unemployment
in the country’s economy. Moreover, the essay will discuss the various factors that have affected
the Australian economy during last five years. Besides this, the study will highlight some
recommendations to aid the economy to have the desired unemployment rate. To conclude, there

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will be a summarized overview of the Australian labour market and a summary of the study so
far.
Condition of Unemployment in Australia:
Australia is one of the stable western nations that possess a lower amount of
unemployment as compared to the world average of 6%. With rise in Gross Domestic Products
(GDP) and reduction in death rate has influenced the Australian economy to have lower amount
of unemployment since 1970 (Hoffmann and Lemieux 2016). If the present unemployment
condition of last five years can be observed, then it can easily be seen that unemployment level
has dropped largely as compared to the 2009. According to the figure 1, it can be seen that
unemployment rate was lowest during 2012, considering the values of last five years; however, it
has crossed 6% during 2014 and 2015. One of the main reasons for this rise in unemployment
was substantial easing of monetary policy since 2013.
2012 2013 2014 2015 2016
4.6
4.8
5
5.2
5.4
5.6
5.8
6
6.2
Year
Unemployment rate
Figure 1: Unemployment of Australia
Source: (Created by Author)

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According to the general economic theory, there is a negative relationship between the
unemployment and GDP growth rate (Gregg, Machin and Fernandez 2014). From table 1, it can
be seen that Australian market promotes same picture and there has been substantial fall in
unemployment due to rise in GDP growth. Correlation of -.900073354 determines strong
negative relationship between the Australian GDP growth and unemployment rate. Thus, if the is
any change in the GDP growth rate, then there will be a change in Australian labour market too
(Andresen 2015).
Unemployment rate GDP growth rate
Unemployment
rate
1
GDP growth rate -0.900073354 1
Table 1: Unemployment and GDP growth rate correlation
Source: (Created by Author)
Present situation of the Australian labour market can be seen from the figure 2, where
growth rate of the country has been plotted with the unemployment rate. According to the
difference between unemployment rate and GDP growth rate, from the diagram 2, it can be seen
that, country had lowest unemployment rate and highest GDP during 2012 and highest
unemployment and lowest GDP in 2015.

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2012 2013 2014 2015 2016
0
1
2
3
4
5
6
7
GDP Growth rate v/s Unemplyment rate
Unemployment rate
GDP growth rate
Year
Rate of Change
Figure 2: GDP Growth rate v/s Unemployment rate
Source: (Created by Author)
According to the figure 3, female unemployment level of Australia can be observed. It
can be perceived from the diagram that female employment is dependable upon the total
employment of the nation. As the total unemployment tends to fall, since 2015, female
unemployment falls too. However, it is interesting to notice that female employment in the
country goes by the line of total employment, providing the country a stable economic condition
and better sustainability (Qi et al. 2015). Besides this, from the figure, it can also be observed
that during 2014 to 2015, women unemployment has fall at a larger scale compared to the total
employment.

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Figure 3: Female unemployment
Source: (Created by Author)
According to the Keynesian theory, this much unemployment is good for the economy,
because it brings in elasticity in the labour market. However, the level of unemployment is
higher than 4% and it will affect the economy adversely (Keynes 2016). Thus, Australian
government need to provide more focus on their fiscal and monetary policy combination that can
effectively reduce the level of unemployment.
Types of Unemployment in Australia:
In the Australian market there are four different types of unemployment is present, which
are seasonal unemployment, frictional unemployment, structural unemployment and the cyclical
unemployment. Details regarding these various types of unemployment are as follows:
Seasonal unemployment:
If the unemployment level varies depending upon the season, then it is known as the
seasonal unemployment. For instance, if the employment is generated during a specific time of
the year and vanishes once the season is over, then it is known as the season unemployment. In
Australia, seasonal unemployment is moderate owing to the fact that it is one of the greatest

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tourist destinations (Bidargaddi et al. 2015). However, if the mining industry is considered, then
it is the highest job-generating sector, thus, scope of seasonal unemployment is also not high.
Frictional unemployment:
According to the theory, when a job seeker searches for desired job for the first time, then
the person may lack in the case of efficiency and fails to find suitable job. During this time, the
person may be voluntarily unemployed and enhance the level of overall unemployment level in
the country. This phenomenon can appear in case of the job seeker who is in search of new jobs
and presently is under the transition period, where he is looking for new job (Carrere, Grujovic
and Robert 2015). In the case of Australian labour market, frictional unemployment is lower,
because the intermediary time for leaving a job and getting a new job is lower. Besides this,
according to the Reserve Bank of Australia, frictional unemployment in the country’s economy
is reducing, as the economy is moving out of recession and leading toward peak. Beveridge
curve supports this phenomenon, according to RBA publication, which is moving inward
displaying a better employment opportunity in the country (Jacobs and Rush 2015).
Structural unemployment:
If there is a mismatch in the given job and the skills of the employee, then he or she
remain abstain from working leading to higher overall unemployment rate. Various factors can
lead to structural unemployment. For instance, if there is certain technological change or skilled
labour is available, then structural unemployment may tend to increase (Restrepo 2015). Besides
this, if the wage rate is lower than the desired amount, then structural unemployment may come
into existence. When it comes to Australian economy, then the structural employment is lower in
number. Due to lack of skill, scope of being fired is also low (Kahn 2015). Moreover, according

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to the RBA report inward shift of the Beveridge curve highlight that there is reduced number of
cased of structural unemployment, as the Australian economy is moving towards peak.
Cyclical unemployment:
When there is lack of aggregate demand, then employment tends to fall and it occurs in
an economic cyclical process that differs depending upon the economic structure. For Australia,
case of cyclical unemployment is much higher, compared to any other unemployment structure.
The country has recently faced recession back in 2008 and 2012 and since then it is rising at a
sustainable rate. With effective monetary policies and enhanced fiscal expenditure, the economy
is expected to have better employment rate in coming years (Cuéllar-Martín, Martín-Román and
Moral).
Policies Adopted by the Government to Address Unemployment:
According to the Australian government, a little unemployment is good for the Australian
economy, because it aids to maintain the elasticity in the labour market and achieve higher
sustainability. Presently Australia has high wage tax leading to reduced disposable income and
voluntary unemployment. Thus government has eased the restrictions on the part time work that
has aided the economy to have overall higher employment count reducing the level of
unemployment rate over time during 2012 to 2016 (Argy and Nevile 2016). Besides this
Workplace Relations Act of 1996 has been reformed to achieve better relationship in working
field and enhance higher level of interdependence that affects the employment of the country.
Australian Workplace Agreements has helped the labours to draw higher wages from their
employer and it has helped the economy to have lower rate of unemployment. Presently
Australia stands second that pays highest amount of wage, however, compared to the developed
nations, Australian labour wage is still low. Australian government has made significant changes

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in the labour market to bring in more clarity in the job network and has introduced Active
Participation Model to enhance the employment level in the country. Besides this, it has been
perceived by analyzing the recent fiscal and monetary reforms of the government that Australian
government is focusing to reduce the unemployment level to the level of 2 to 3% with the aid of
effective contractionary monetary policies (Carson and Kerr 2017). They are aimed to reduce the
monetary ease that has been lasted for 18 months since 2013. This reform is aimed to reduce the
liquidity in the money market and enhance the export rather than import.
Unemployment status of Different States of Australia:
According the studies of Mavromaras, Sloane and Wei (2015) unemployment follows the
economic cycle and financial condition of the economy is one of the main driving forces that
control the unemployment level. If the economy is in recession stage, then the unemployment
will be higher and when it tends to move towards the peak, then employment will rise, reducing
the unemployment level. In order to study this, participation rate is one of the best indicators that
clearly highlight the present labour market condition.
According to the figure 3, participation rate has been falling during 2012 to 2014 and it
started to rise since then. Comparing these details with the figure 1 it can be seen that as the
economy has faced reduction in participation rate, unemployment started to rise and with rise in
participation rate back in 2014, unemployment started to fall. However, one interesting thing in
this context need to be highlighted that, participation rate during 2015 onwards started to fall,
however GDP growth was positive during this time. One of the major reasons for this
phenomenon was rise in Australian population during this time (Gregory and Smith 2016).
Besides this, immigration was another major reason that has lead to fall in participation rate and
fall in employment leading to a positive relation between these two economic factors.

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2012 2013 2014 2015 2016
64.4
64.5
64.6
64.7
64.8
64.9
65
65.1
65.2
Year
Participation rate
Figure 3: Participation rate
Source: (Created by Author)
According to the table 2, participation has positive relation with the GDP, thus, if the
economy tends to rise, then participation will also rise too.
Participation rate GDP growth rate
Participation
rate
1
GDP growth
rate
0.728627912 1
Table 2: Participation rate v//s GDP growth rate
Source: (Created by Author)
With the help of labour participation data, it can be seen that Australian economy has
varied level of unemployment over the period of 2012 to 2016 (Hawthorne 2016). Figure 4
shows that maximum unemployment reduction had taken place in Western Australia during 2013
and the major reason for this change was rise in aggregate demand and higher level of
participation rate. Besides this, when it comes to Victoria, then during 2015 labour participation
of this Australian state was lowest that lead to highest level of unemployment. Considering the

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5
6
4
2
3
7 NSW
VIC
QLD
WA
unemployment trend of 2016, of the four major cities, it can be seen that, rate of unemployment
is falling and if the trend continues, then it will soon be under the 5% level (Bonoli 2017).
Figure 4: Unemployment rate of different states
Source: (Created by Author)
Recommendation:
Australian government has effectively reduced the unemployment rate compared to the
level of 2013, and it is expected that if the present flow of government expenditure continues,
then government can escalate it further to the natural rate of unemployment. According to the
Australian government, they are aimed to produce 2 million jobs by 2030; however, present
situation shows that there is instability in the labour market due to various internal and external
factors. In this context, following are some recommendations for the Australian government:
Australian labour market lacks skilled labour. This has been restricting the market since
2012 to grab the mining boom originated from the Asian countries like China, Indian and
other OECD countries. Thus, it is necessary for the Australian government to bring in
skill enhancement program that will aid the economy to have higher numbers of skilled
labours and enhance the productivity of the nation.

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Another major issue with the Australian labour market is higher level of tax rate. Thus,
government need to bring in tax reduction for the workers and provide higher amount of
disposable income that can effectively enhance the goods and services of the country.
Most of the Australian labours are employed in the mining industry and any shock in the
demand of the mining output can cause rise in unemployment. Thus Australian
government need to diversify its business and find out new products and service in order
to produce higher number of jobs.
Monetary policy of the government is tighter since 2014, leading to lower aggregate
demand. Thus, government can reduce the interest rate and provide stimuli to the
Australian economy that will enhance the job opportunity.
Conclusion:
Unemployment is one of the common phenomenons for the Australian economy that has
varied over time due to various factors. The study has found that, economy has been facing rise
in unemployment since 2012 due to lack of jobs and reduction in mining industry. However,
government policies taken during 2014 to check the rise in unemployment have effectively
reduced it. During 2016, the country has unemployment rate of 5.7% and the trend highlights
that economy will face lower employment in coming years. According to the study, one of the
major reasons for this reduced unemployment is rise in government expenditure that has
effectively penetrated the economy, leading to higher number of job creation. The study has
found that, Australian economy is presently structurally strong and if the predictions are true,
then economy will reach to natural employment level by 2021. However, according to the study,
major chunk of the unemployment has been originated for the structural and cyclical reasons.
Slow growth of wage and unstable demand of mining industry are the main reason that has been

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causing the economy to face these types of unemployment. To conclude, it can be said that,
demographic changes are going to play a major role in the coming years and if the government
follows the present flow of public expenditure, then it will enhance the participation rate and
escalate the present unemployment rate farther.

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Reference:
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measurements of the economy. Canadian Journal of Criminology and Criminal Justice, 57(1),
pp.35-58.
Argy, V.E. and Nevile, J. eds., 2016. Inflation and Unemployment: Theory, Experience and
Policy Making. Routledge.
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Policy Making. Routledge.
Bidargaddi, N., Bastiampillai, T., Schrader, G., Adams, R., Piantadosi, C., Strobel, J., ... &
Allison, S. (2015). Changes in monthly unemployment rates may predict changes in the number
of psychiatric presentations to emergency services in South Australia. BMC emergency
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parallel or converging tracks?. Taylor & Francis.
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Cuéllar-Martín, J., Martín-Román, Á.L. and Moral, A., 2017. Natural and cyclical
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