Factors Contributing to Lower Unemployment Rate and Housing Price Rises in Australia

This article discusses the factors and policies that have contributed to the lower unemployment rate during the pandemic, the limitations of unemployment rate formulations, and the implications of low unemployment for inflation. It also explores the factors that may have contributed to the rise in housing prices and whether the Reserve Bank of Australia and federal and state governments should intervene to contain the housing price rises.

ECO1000 Assessment 2
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Table of Contents
INTRODUCTION...........................................................................................................................3
QUESTION 1..................................................................................................................................3
Factors or policies that have contributed to the lower unemployment rate during pandemic.....3
How each type of unemployment has been affected by policies/factors?...................................3
Limitations of unemployment rate formulations, used by Australian Bureau of statistics.........4
How skilled migrants can contribute to economic growth and possibly ease inflationary
pressures......................................................................................................................................5
QUESTION 2..................................................................................................................................6
Factors that may have contributed in rises in housing prices......................................................6
Should the Reserve Bank of Australia consider the rise in housing price when designing
monetary policy?.........................................................................................................................6
Should federal and state governments intervene to contain the housing price rises?..................7
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9
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INTRODUCTION
Australia’s economy is highly developed mixed economy. It has 25.4 million populations.
Covid-19 and closure of borders have had number of negative impacts on its economic
performance in the year of 2020. This essay is going to discuss some government’s effective
policies that has lowered unemployment rate in Australia. It will further discuss impacts of
immigrants on economic condition of Australia and roles that immigrants play in improving
country’s economic condition. It will further discuss some factors that increased housing prices
and reasons as why reserve Bank of Australia should consider increased housing prices while
designing monetary policies.
QUESTION 1
Factors or policies that have contributed to the lower unemployment rate during pandemic
At the time of Covid-19, half a million of visa holders or migrants left the country. Many
skilled migrants left the country and it leads unemployment rate. It lowers unemployment rate
but affected economy to the great extent. Australian government make changes in some policies
in order to cope up of lowering unemployment rate. Labour market and monetary policy of
Australia has lowered unemployment rate during pandemic.
The recovery of Australian labour market has been remarkable this year. As number of
immigrants left this country and it has increased scope for locals for getting an employment
opportunity. Number of Australians in a job has increased by around 250,000. Reserve bank has
also lowered the cash rate 0.1%, It also helped locals of Australia in getting employment
opportunities and accomplishing goals. In addition, it is also found that Reserve Bank purchased
bond issues that were issued by Australian government (Lambovska, Sardinha and Belas, 2021).
Purchasing of these bonds help Australia in lowering the structure of interest rates in Australia. It
will support Australia’s economy that may include: lowering borrowing cost and exchange rate.
Overall, it can be said that policies and labour market of Australia is lowering unemployment
rate that is good for Australian.
How each type of unemployment has been affected by policies/factors?
As it is known or discussed unemployment rate and some policies have made positive
change. But there are some negative impacts of monetary policies and labour market. Low
interest rate has some negative impacts on those who rely on interest income. Reserve bank
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board has discussed all negative impacts but overall such policies have benefited to community
as whole.
With this, wages growth will have to be materially higher than currently. Each policy and
factor is affecting economy and local labour market. There are both positive and negative
impacts. It is affecting employment. On positive side, it can be said that it is good for locals or
Australians. But lack of skilled employees can affect economy of Australia. Competition is
increasing and companies of all countries are striving hard. But due to lack of skilled employees,
Australia may suffer in upcoming years as it will have to strive hard for being in the competition.
It can affect economy (Kühn, 2018). It is providing liquidity to financial system, government
bond market. It is supporting people as it is increasing their income and they are more likely to
invest in some local products that may improve economic condition. Main aim of such policies
was improving economic condition and helping out locals in increasing living standard.
Limitations of unemployment rate formulations, used by Australian Bureau of statistics
Unemployment rate refers % of people who are unemployed and seeking for a good job.
There are number of people all around the world who are skilled and educated but still are not
employed. The only reason behind it is: increasing population. But it is responsibility of
government to provide job or employment opportunity to all people who deserve and seeking for
job. Employment opportunities can be increased by measuring unemployment rate with an
unemployment rate formulation by Australian Bureau of statistics. Australian Bureau of statistics
has conducted a survey for measuring unemployment rate that is known as labour force survey.
In this survey random 50,000 people are being asked about their participation in labour market
and reasons of unemployment (Birch and Preston, 2020).
But it targets only those who are in the labour force; people who have given up looking for
a job are not being targeted in this survey. It may lead some problems. For knowing reasons and
all about of unemployment, people need to target all people and need to ask questions as why
they left labour force and all other relevant questions. On the other hand, the main advantage of
this formulation is it helps in measuring all types of unemployment such as: structural, cyclical,
frictional and others.
Implications of low unemployment for inflation
Low level of unemployment corresponds with higher inflation and high level of
unemployment corresponds with lower inflation. When unemployment rate is low then
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consumers have discretionary income to purchase services and goods. They invest and more
likely to purchase goods and it increases demand for goods and services. There is relationship
between demand and prices as when demands increase then prices follow.
Australia’s inflation target is to keep annual inflation consumer price inflation between 2
and 3%. Inflation consumer price changes when consumer index price changes. It helps them out
in capturing price changes for services and goods that household buy. It is also found that it is
produced by Australian Bureau of statistics. It is available publicly and cannot get revised. The
main aim of inflation target is to guide central bank’s policy decisions. It also helps Australian to
ensure accountability in economic management. Inflation target is important as well as beneficial
for Australian (Powell, 2018). It is found that this framework and inflation target help
government in accomplishing its goals of price stability and improving living standard of people.
Successful implementation of this framework can increase employment rate that will improve
economic condition of Australia. Australian companies can be in competition and with the help
of such policies, they can accomplish goals.
How skilled migrants can contribute to economic growth and possibly ease inflationary pressures
Skilled immigrants can help companies in improving economic condition. Immigrants in
advanced economies help in increasing output and productivity. They bring innovation and
creativity in the market by which companies take competitive advantages. When they increase
productivity then they expand their businesses. With expansion of business, companies require
employees. When they hire new employees then it increases employment rate. Everyone get job
opportunity and by which they can foster their families with effectiveness.
People of improved economy find easier in investing in goods and services. Immigrants
and native workers bring to the labor market with diverse set of skills. It complements each
other’s and increase productivity of companies for which they work. Improved productivity is
directly associated with improved productivity (Segendorf and Theobald, 2019). Australia got
affected at the time of covid-19 because number of skilled immigrants left Australia that makes
its economy with lack of skills. Due to this, it faced some problems in being in the competition.
Overall, it can be said that immigrants lead productivity and improved economy.
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QUESTION 2
Factors that may have contributed in rises in housing prices
There are number of factors that contribute in housing prices and affecting people. Some
factors by which housing prices are increasing such as: demographic, economic condition,
interest rates, governmental policies and subsidies. Real Estate represents significance portion of
people’s wealth. It is found that around 64.9% of America families owned their own primary
residence in the year of 2019. Interest rate is one of the main factor that leads rising in housing
(Gertler, M. and Gilchrist, 2018). Real estate prices of housing follow the cycle of economy and
investors have power to decrease this risk by purchasing diversified and REITs holding that can
either not tied to economic cycle or can withstand downturns.
Interest rates: Lower interest rate imply lower mortgage repayments that allows
borrowers to borrow more. Lower interest rate leads higher housing demand and prices as well.
On the other hand, with higher interest rates, housing demand as well as prices will go down. So,
on this basis, it can be said that rises of housing process caused by lower interest rates.
Economic condition: Economic condition of Australia is good over past few years as
unemployment rate is decreased. Average income of people is increasing that is beneficial for
people as it is improving their living standard. It is also increasing housing demand and prices as
well (Martín Martín, Guaita Martinez and Salinas Fernandez, 2018).
Investment demand: Since 1995, investment demand in housing has increased. Investor-
landlords have become one of the main driver of rising housing prices in Australia. They find
easier in loan approvals and it is increasing housing prices.
Should the Reserve Bank of Australia consider the rise in housing price when designing
monetary policy?
Monetary policy plays a vital role in influencing housing prices because of changing
interest rates. Reserve Bank of Australia stated that housing prices in Australia will rise as full
time employment is also increasing. It also stated that there will be no changed until 2024 and
2025 but it will consider rise in housing prices when he will design or make changes in monetary
policy. Some steps that it is going to consider include: tackling inflation that includes: rising in
repo rates. It is the rate at which banks borrows from RBI. Other than this, it will consider rates
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or prices that is increasing in Cash Reserve ratio, reduction in rate of interest on amount that is
deposited by banks with Reserve Bank of India.
The main aim of monetary policy, designed by RBI should be controlling inflation target.
RBI also states that it will not raise interest rates in order to ease soaring housing prices because
strict monetary policy will cost jobs. It is also stated that housing demand is increasing spending
that is ultimately beneficial for economic condition of country (Rosewall and Shoory, 2017). But
some Deputy Governor of RBA argued that it is a distributional problem to some extent and it
can affect inequality so, with interest rates, this problem cannot be solved. For solving this
problem, official cash rate will be required to drop. Current fiscal and monetary policies of
Australia have brought number of positive changes as it has improved economic condition of
Australia by increasing employment rate.
It is stated by Deputy governor of RBA that rather than inequality, there is no other
consequence of rising housing prices. Inequality is the major concern that can be decreased or
considered with other tools. Designing or changing monetary policy is not the main solution or
tool for decreasing housing prices. he also stated that the main aim of current monetary policy is
to set employment and inflation. If they make changes in monetary policy, then it will affect
employment rate. Employment rate will be decreased and it will affect economic condition. So,
overall, it can be said that changing monetary policy is not the right solution for decreasing
housing prices (Monnin, 2017).
Should federal and state governments intervene to contain the housing price rises?
State and federal governments need to intervene in housing
market and they need to allocate appropriate resources in an effective manner. It will help them
out in making the market efficient. There are some factors that state and federal governments
of Australia need to consider such as: development of National housing strategy, supporting for
first home buyers, better deal for renters, immediate relief for Australians who are suffering from
rental stress and making a plan for decreasing homelessness within 10 years. But on the other
hand, it is found that governmental interventions in housing and property market is harming it.
It is also stated that by making some changes in governmental policies, inequality can be
decreased (Been, Ellen and O’Regan, 2019). Government interventions in housing market can
promote economic fairness. There are several others reasons that stress upon that why
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government should intervene in housing markets such as: maximising social welfare. It can break
out monopolies and others.
For this, federal government needs to get better at putting conditions on infrastructure
investment that it puts into states. It can help it out in delivering urban planning and transport
infrastructure in an effective and timely manner. Jane Fitzgerald, new executive director of
property council of Australia said that there is requirement for housing affordability with faster
approval for homes Sydney. By improving planning system and lowering interest rates,
managers can make a balance between demand and supply. It can help them out in meeting
supply chain demand. They also stated that nowadays, housing has become very important.
When people have money then their first investment is in housing only (Fligstein, 2021).
Governments may intervene in markets in order to accomplish goals such as national unity. It
will help them out in promoting diversity so, on this basis it can be suggested that federal and
state governments should intervene in housing market.
CONCLUSION
It has been summarised from the above study that increased employment rate plays a vital
role in improving economic condition of country. Increased employment increases investment
spending of people that brings number of positive changes in the market. It has further discussed
some factors that leads increment in housing prices. it has also discussed importance of monetary
and federal policies in influencing housing prices, employment rate and others. Australia’s
economic condition is very good since the past few years and it is all because of monetary
policy. Skilled workforce also plays a vital role in improving economic condition of countries as
it makes them able to take competitive advantages.
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REFERENCES
Books and journals
Been, V., Ellen, I.G. and O’Regan, K., 2019. Supply skepticism: Housing supply and
affordability. Housing Policy Debate. 29(1). pp.25-40.
Birch, E. and Preston, A., 2020. The Australian labour market in 2019. Journal of Industrial
Relations. 62(3). pp.341-364.
Fligstein, N., 2021. States, markets, and economic growth. In The economic sociology of
capitalism (pp. 119-143). Princeton University Press.
Gertler, M. and Gilchrist, S., 2018. What happened: Financial factors in the great
recession. Journal of Economic Perspectives. 32(3). pp.3-30.
Kühn, M., 2018. Immigration strategies of cities: local growth policies and urban planning in
Germany. European Planning Studies. 26(9). pp.1747-1762.
Lambovska, M., Sardinha, B. and Belas, J., 2021. Impact of Covid-19 Pandemic on the Youth
Unemployment in the European Union. Ekonomicko-manazerske spectrum. 15(1). pp.55-
63.
Martín Martín, J.M., Guaita Martinez, J.M. and Salinas Fernandez, J.A., 2018. An analysis of the
factors behind the citizen’s attitude of rejection towards tourism in a context of
overtourism and economic dependence on this activity. Sustainability. 10(8). p.2851.
Monnin, P., 2017. Monetary policy, macroprudential regulation and inequality. Macroprudential
Regulation and Inequality (April 12, 2017).
Powell, J.H., 2018. Monetary policy and risk management at a time of low inflation and low
unemployment. Business Economics. 53(4). pp.173-183.
Rosewall, T. and Shoory, M., 2017. Houses and Apartments in Australia| Bulletin–June Quarter
2017. Bulletin, (June).
Segendorf, A.O. and Theobald, E., 2019. Can immigration solve the problem of an aging
population? Sveriges Riksbank Economic Review. 1. pp.6-29.
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