ECO101 Principles of Economics: Analysis of Unemployment in Australia

This report examines unemployment in Australia, defining and measuring it while exploring recent trends. It classifies unemployment types—frictional, cyclical, and structural—and identifies causes such as population increase, sectoral shifts, and youth unemployment. Regional disparities are highlighted, with Western and South Australia facing more acute issues. Policy recommendations emphasize skill development, free market job searching, and unemployment support. The report concludes that addressing unemployment requires multifaceted approaches tailored to Australia's unique economic landscape. Desklib offers similar solved assignments for students.

Running head: UNEMPLOYMENT IN AUSTRALIA
Unemployment in Australia
Name of the Student
Name of the University
Author Note

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Table of Contents
Introduction................................................................................................................................2
Unemployment: Definition and Measurement...........................................................................2
Unemployment in Australia.......................................................................................................3
Classifications of unemployment in Australia...........................................................................4
Causes of unemployment in Australia.......................................................................................6
Unemployment by regions in Australia.....................................................................................7
Policy Recommendations...........................................................................................................8
Conclusion..................................................................................................................................9
References................................................................................................................................10

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Introduction
The economic performance of different countries as well as that of the global scenario
considerably depends on the activities and dynamics of different macroeconomic indicators
like that of the Gross Domestic Product, the rate of inflation, unemployment rate and others,
which shows the overall growth conditions of the economy and the wellbeing of the
population of the concerned countries or regions (Agénor & Montiel, 2015).
Of these indicators, the rate of unemployment present in a country and its dynamics
appear as matters of huge consideration as the same have significant implications not only on
the present generation of the population and their economic wellbeing but the effects are also
transmitted to the future generations and on the overall purchasing power, consumption
pattern, aggregate demand-supply situations and the overall productivity and prosperity of the
economy, in the long run as well as in the short run (Pigou, 2013).
In this context, Australia, in spite of being one of the most developed and stable
economies in the global scenario, can be seen to be facing considerable dynamics in the
aspects of different unemployment statistics in the country, especially over the last few years
and the same can also be seen to experience different types of unemployment, owing to both
internal and external dynamics faced by the economy. Keeping this into consideration, the
concerned report tries to discuss the aspects of measurements of unemployment, thereby
discussing the trends and causes of unemployment in Australia, in the contemporary period,
thereby analysing the policies which can be implemented by the same to solve the problem.
Unemployment: Definition and Measurement
In the conceptual and theoretical framework of economics, the term
“Unemployment”, refers to the situation in an economy, where there is presence of a number
of people in the adult population, who have the eligibility to work and are also willing to

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work, but who do not get the opportunity of finding any employment in the economy. To
understand the notion of unemployment and the measurement of the same, it is important to
understand the concept of labour force in an economy.
Labour Force- The labour force of an economy consists of the usually the people from the
population (of age 15 years to 60 years) who are eligible and are also willing to find
employment. They may be employed or not employed at a particular point of time (Wu &
Xia, 2016). On the other hand, the labour force excludes those in the adult population who
voluntarily choose not to get employed and the discouraged workers.
Thus, the employment scenario of a country can be measured with the help of the dynamics
in the labour force participation rate:
Labour Force Participation Rate = (Labour Force)/ (Adult population in the country)
On the other hand, the unemployment rate of the country shows the magnitude of the
problem of joblessness in the economy at a point of time in the concerned country and the
same can be measured as follows:
Unemployment Rate = Number of unemployment people in the labour force/ Total
labour force
This is the usual method of measuring unemployment in the generalized global
economic framework, with different variants used in different countries and for different
types of unemployment (Michaillat, 2012).
Unemployment in Australia
The economy of Australia, being one of the most stable and impressive economies in
the country, has however had its share of fluctuations in different aspects of the economy. In

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terms of unemployment the general trend of the same, in case of Australia, over the last few
years can be seen to be as follows:
Figure 1: Rate of Unemployment in Australia over the last few years
(Source: Tradingeconomics.com, 2018)
As is evident from the above figure, the rate of unemployment, which used to be near
5.4% in 2012, rose considerably, to as high as 6.4% in 2015. However, the same fell to some
extent (to 6%) in 2016 and further post 2016 and the rate can be seen to be around 5.5% in
the recent period, which though lower than the previous years, can be still seen to be at a
moderately high level for an economy like that of Australia.
Classifications of unemployment in Australia
In general, there are three broad types of unemployment in the conceptual framework
of economics which are described as follows:
Frictional Unemployment- The usually short run unemployment which generally occurs
while the workers move from one job to another, thereby remining unemployed for some
time in between the transition process.

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Cyclical Unemployment- This unemployment occurs due to contractions in the business
cycles of the economy, which leads to loss of jobs (Goodwin et al., 2015).
Structural Unemployment- This is a comparatively prolonged and more serious form of
unemployment in general and the same occurs in the presence of any structural shift in the
economy, which may lead to a change in the forms of employment generation and a
mismatch between the demand for skills and the presence of the existing skills in the labour
force.
In case of Australia, all the three types of unemployment can be seen to be present in
the contemporary period:
Frictional Unemployment- This type of unemployment can always be seen to be present in
the country as the people in the labour force keeps on changing their jobs, thereby remaining
unemployed for short spans of time.
Cyclical Unemployment- In the recent period, the country can be seen to have been
experiencing cyclical contractions due to the withering out of the mining booms, bursting of
the residential sector bubbles and other aspects, which in turn has led to the increase in the
unemployment to almost 5.4% from 5% in the recent years and this unemployment can be
termed as cyclical unemployment, where the period of unemployment can be seen to be
usually ranging between 4 to 52 weeks (Gregory, & Smith, 2016).
Structural Unemployment- The recent labour market of the country can also be seen to
experience a demand-supply mismatch of labour skills that are present and that are required
due to a sectoral shift in the economy from manufacturing to more of service sector
industries. This indicates towards the creation of structural unemployment in the country.

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Causes of unemployment in Australia
There have been several reasons behind the presence of unemployment in the country, the
primary ones, in the contemporary period, being as follows:
a. Increase in population and migration- The economic prosperity of Australia has over the
years contributed in its population increase, much of which can be contributed to the huge
immigration in the country.
Figure 2: Change in the population of Australia
(Source: Macrobusiness.com.au, 2018)
This in turn has increased the labour supply in the country, much of which could not be
absorbed in the formal employment sector.
b. Sectoral shift- The country has been experiencing a huge shift in the industrial aspects,
with considerable expansion of the service sector and a shrinkage of the manufacturing and
agricultural sector over the years:

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Figure 4: Employment in Australia by industries
(Source: Rba.gov.au, 2018)
Major share of the labour force being those with basic skills (especially immigrants)
and basic education level, they could not be employed in the capital-intensive service sectors,
thereby increasing the unemployment problem in the country (Whiteford, 2014).
c. Youth Unemployment- The rate of unemployment among the youths of the country
(between 15 to 24 years) have remained sustainably high (between 14.5% to 12.5%) in the
last five years, much of which can be attributed to both the lack of opportunities for the
youths in terms of job creations and due to increasing trends of non-paid internships or higher
studies (Carvalho, 2015).
Unemployment by regions in Australia
The trends and nature of unemployment and the gravity of the situation can however
be seen to be varying across different regions in the country, as can be seen from the
following figure:

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Figure 4: Region-wise unemployment in Australia
(Source: Lmip.gov.au, 2018)
As is evident from the above figure, the problem of unemployment is most acute in
Western Australia (6.8%) followed by South Australia (6.4%), much of which maybe due to
the fact that these places experience huge immigrant inflow and are mostly manufacturing
and agriculture relying regions. On the other hand, the problem can be seen to be least in the
Australian Capital Territory and Northern Territory of the country, with the Northern
Territory making up only 1.1% of the total labour force of the country but contributing nearly
243 million working hours on an average in a year, which can be attributed to the presence of
employment generating industries and skill match in these regions (NewsComAu, 2018).
Policy Recommendations
The primary policy which the government of the concerned country can incorporate to
combat the solution is to invest in the skill development of the labour force in order to make
them eligible for the new service sector employments. This may include education and

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development programs, some of which can already be seen to be implanted by the
government in the recent years, in their National Employment Strategy (Ballantyne, De Voss
& Jacobs, 2014). Apart from that, the government can also incorporate free market policy in
the aspects of job searching in order to ensure efficient and fast allocation of jobs to those
who are looking for it. Unemployment support and financial aids also needs to be provided to
avoid the increase in the number of discouraged workers in the economy.
Conclusion
From the above discussion, it can thus be seen that the economy of Australia, in the
contemporary period, has been experiencing different forms of unemployment, the causes of
the same being intrinsic as well as extrinsic. The level of unemployment can also be seen to
be varying across different regions of the country, mainly due to structural issues. The
government has started taking several measures. However, there remains different methods
which the same can implement in order to reduce the unemployment related problem in the
concerned country in the coming periods.

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References
Agénor, P. R., & Montiel, P. J. (2015). Development macroeconomics. Princeton University
Press.
Ballantyne, A., De Voss, D., & Jacobs, D. (2014). Unemployment and spare capacity in the
labour market. RBA Bulletin, 7-20.
Carvalho, P. (2015). Youth unemployment in Australia. Policy: A Journal of Public Policy
and Ideas, 31(4), 36.
Goodwin, N., Harris, J. M., Nelson, J. A., Roach, B., & Torras, M. (2015). Macroeconomics
in context. Routledge.
Gregory, R. G., & Smith, R. E. (2016). 15 Unemployment, Inflation and Job Creation
Policies in Australia. Inflation and Unemployment: Theory, Experience and Policy
Making, 325.
Lmip.gov.au. (2018). Welcome to the Labour Market Information Portal. Retrieved from
http://lmip.gov.au/default.aspx?LMIP/LFR_SAFOUR/LFR_UnemploymentRate
Macrobusiness.com.au. (2018). Does Australia's prosperity depend on immigration? -
MacroBusiness. Retrieved from https://www.macrobusiness.com.au/2013/09/does-
australias-prosperity-depend-on-immigration/
Michaillat, P. (2012). Do matching frictions explain unemployment? Not in bad
times. American Economic Review, 102(4), 1721-50.
NewsComAu. (2018). NT leads nation in employment. Retrieved from
https://www.news.com.au/national/northern-territory/northern-territory-has-lowest-
unemployment-rate-in-australia/news-story/80626d1d6c8efe4ae7dea1d4538b940e
Pigou, A. C. (2013). Theory of unemployment. Routledge.

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Rba.gov.au. (2018). Structural Change in the Australian Economy | Bulletin – September
Quarter 2010 | RBA. Retrieved from
https://www.rba.gov.au/publications/bulletin/2010/sep/1.html
Tradingeconomics.com. (2018). Australia Unemployment Rate | 1978-2018 | Data | Chart |
Calendar. Retrieved from https://tradingeconomics.com/australia/unemployment-rate
Whiteford, P. (2014). chapter 3 AUSTRALIA: INEQUALITY AND PROSPERITY AND
THEIR IMPACTS IN A RADICAL WELFARE STATE. Changing Inequalities and
Societal Impacts in Rich Countries: Thirty Countries' Experiences, 48.
Wu, J. C., & Xia, F. D. (2016). Measuring the macroeconomic impact of monetary policy at
the zero lower bound. Journal of Money, Credit and Banking, 48(2-3), 253-291.