A Comprehensive Analysis of Unemployment Challenges in Australia

This report delves into the multifaceted challenges of unemployment in Australia. It begins by defining unemployment and exploring its various causes, including union pressures, manufacturing costs, and the mismatch between labor supply and demand. The report then categorizes and analyzes different types of unemployment prevalent in Australia, such as structural, frictional, cyclical, and seasonal unemployment, providing specific examples and explanations for each. A graphical analysis of the Australian unemployment rate from 2013 to 2018 is presented, highlighting trends and fluctuations, and the report also provides state-based unemployment data. The paper concludes by emphasizing the importance of understanding these dynamics for policymakers and the broader economy, underscoring the need for effective strategies to mitigate the impact of unemployment and foster economic growth. This analysis is crucial for understanding the current economic landscape and potential future developments in the Australian labor market.

Running Head: Australian Unemployment
The Challenges of Unemployment in Australia
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The Challenges of Unemployment in Australia
Introduction
Unemployment problem is becoming a major challenge for small and major economies.
Most nations are experiencing a significant level of unemployment rate. Many policies are put
forward into boosting the creation of jobs. Unemployment has been associated with an increment
in poverty levels in the society. These policies are targeted to raise its growth potential in the
coming years to enable the creation of million jobs to keep up with the population growth. The
only way to low the poverty level is to ensure that the unemployment rate is lowered as much as
possible. There are many reasons why the Australian economy has suffered from high
unemployment rate for a long period. One is that demand for labor has been weak and cyclical
which has slowed down the growth of employment. However, the growth in population and the
participation rate has resulted in a fast growth of the labor supply. There are also no efficiency in
the matching of the unemployed persona with the vacant jobs due to structural influence. The
Reserve Bank of Australia (RBA) noted that employment growth rate is too slow compared to
the rate at which growth in the labor force is experienced
Like any other developed economies, Australia is trying to improve the labor market by
supporting its economic growth. The private sector in Australia has been recognized from its
high contribution on creating job opportunities. Thus, the government is thus improving its
concern on improving the private sector by making businesses stronger and raising their ability
to compete globally. This paper shall cover some of the key factors resulting in high
unemployment in Australia, some of the policies implemented, common causes and the actual
analysis of the changes during the past five years. This paper will be useful especially for policy
makers.
Definition and Causes of Unemployment
Unemployment is defined as an economic situation where there are people in the labor
force without jobs (Hubbard, Garnett, Lewis, and O'Brien, 2014). They are considered
unemployed because they meet the three conditions set by the Australian government. One, they
must be having no job; two, these people must be active in seeking employment; three, they must
be available for a job opportunity that could be presented to them. When all this conditions are
met, it’s now factual to estimate the unemployment rate which is the proportion of those who

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have met the conditions of being unemployed to the economy’s labor force. The conditions for
unemployment excludes many people from being considered unemployment even if they have no
job.
There are many factors that drives the high unemployment rate. One of them is the union
pressures; the unions are distorting the market for labor where wages are determined by demand
and supply. The equilibrium level cannot be achieved in this market because, the wage rates
payable are above the equilibrium wage. At a lower wage rate, employers would be willing to
add into their workforce some more labor and the unemployment rate would fall. However, the
case for Australia is different, the high wages has led to businesses lowering their workforce as
illustrated below.
Fig: Equilibrium in the Australian labor market
Wage Rate
Supply
Wu
We
Demand
Q1 Qe Q2 Capacity (Q)
If the market was on its own, the equilibrium wage is We and the capacity is Qe.
However, due to monopoly pressures, the wage rate is fixed above We at wage Wu. At the higher
wage Wu, businesses demand Q1 workers; but this high wage attracts many people to the labor
force causing an oversupply of labor equal to Q2 – Q1. Q2 number of persons are willing to supply
labor at wage Wu. The equilibrium is completely distorted.

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Another important cause is the manufacturing costs. These costs are discouraging
production and so there is no possibility for expansion. Many shops have closed down while
others are on the way of doing so. Some bigger companies are looked forward to shifting their
operations to other countries with better costs (Elaine, 2016). This is accelerated by the fact that
countries are offering tax incentives for western investors to shift their businesses to their
country. One of the industry most likely to cease operating in Australia according to Hawthorne
(2015) is the car manufacturing industry. The proportion of the employment rate from the
manufacturing industry has greatly declined over the years (Toth, 2016).
Unemployment Types in Australia
Structural Unemployment
This employment results from structural changes in an economy or in the line of job. For
instance, let consider the impacts of introduction of a new technology, not all the previously
employed employees will be able to adapt to the new technology. If the new technology requires
all employees to be computer literate, only those who possess the skills will be maintained in the
job; all others will lose their jobs. Those who lose their jobs are said to be structurally
unemployed because there exist jobs that doesn’t match their qualifications (Weaver, 2011).
However, it’s not always the case since some technological changes create job opportunities. The
only option that these victims are left with is either to go back to a learning institution and
acquire the skills or they may choose to find a job different from the one held earlier. Finding a
new job is difficult and acquisition of skills from learning institutions is time consuming, thus,
these victims may take long before being employed once more.
Another instance is when the production costs in one country rises so much that
companies start operating at losses and are not even able to breakeven. This is the current case
for manufacturing companies in Australia. These companies may consider the cost of a similar
production line in a different country and if they find it profitable to operate in that new economy
rather than the domestic economy, they may opt to shift their operations to that economy (Nash,
2017). Those who are hurt most are the previous employees. In the end, most of these employees
are left behind with skills but no job to match them. Other industries might not be in need of
these skills and thus difficult to get a job. This types of unemployment as we have noted is that it
may extend to the long run; this is why it becomes a major concern for the Australian
government.

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Frictional Unemployment
Friction unemployment occurs because of the presence of information asymmetry in the
labor market. This means that those who need employees have no information on the existence
of that who is seeking employment (Juneja, 2018). The one seeking employment on the other
hand has no information on the firms is need of employees. Thus, time passes before these two
parties match each other. During this search period, the victims are said to stay frictionally
unemployed. Another cause is when someone with a job but lacks satisfaction in it makes a
decision to quit the job and seek for another job. During the search period, this victim remains
unemployed.
Another cause is the choice of whether to engage in an underpaying job that does not
meet the skills acquired at colleges or to wait for a job opportunity that matches skills acquired at
the university to show up. This is mostly the case for the fresh graduate; most likely their choice
will be to wait for that uncertain opportunity since they consider other jobs to be substandard for
them. With the present situation of high unemployment rate in Australia, such an opportunity
may take long to show up and thus the victims may take a longer time before they become
employed. From this analysis, this form of unemployment is voluntary and occurs in the short
run. It thus doesn’t attract much attention for the Australian government.
Cyclical Unemployment
All economies are faced with business cycles where businesses perform well and other
periods when they perform poorly (Jain, Trehan and Trehan, 2014). Good business performance
ensures that there is high level of employment as more jobs are maintained and more are created
as business undergoes expansion (Riley, 2015). On the contrary, poor business performance
destabilizes business revenues making it unbearable to maintain jobs. Businesses cut the number
of employees to avoid high labor costs during this period in order to ensure that firms maintain
significant revenues (Amadeo, 2018). Let’s consider the 2007-09 global recession where the
unemployment rate was very high and remained high for some years. The unemployment rate for
Australia and other economies have been high ever since the GFC. This tells us that this
unemployment may extend to the long run and thus it attracts the attention of the policy makers.
The imposition of monetary and fiscal policies or a mix of the two is important to stimulate the
economy during the poor business cycles.

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Seasonal Unemployment
In any given economy, there are seasonal jobs where the production process or the
provision of certain goods and services is only at a given period of time. During this period,
many people are employed, however, when the period ends, these previously employed workers
are left without a job (Pettinger, 2017). Not unless they change to another line of business these
people will remain unemployed until the period resumes. An example is those people who sell
ice creams during the summer, when winter sets in, these sellers cannot sell ice cream in a cold
season since the demand becomes lower. Another case is for those people who offer ice scooping
services during the winter, when summer sets in, the ice is no more and thus they have to wait
for the next winter without jobs. From this analysis, it can be established that this unemployment
is only temporary and thus does not attract the attention of policy makers.
Graphical Analysis
Fig: Australian Unemployment rate
Source: Tradingeconomics.com (2018)
The graph above represents the changes in the Australian unemployment rate from 2013
to 2018. There has been some improvement in some years while the performance was poor in
other years. The same level reported in 2013 was reported during the last quarter of 2017.
However, in between the performance was very poor (the unemployment rate was very high). In
2013, Australia reported a 5.4% unemployment rate, this rose to 5.9% in 2014, rose to 6.4% in
2015, fell to 6.0% in 2016, and fell further to 5.9% in 2017. The last fall was to 5.5% in the first
quarter of 2018. The highest unemployment rate level was in 2015. This period can be said to
have had the poorest economic growth of the five years that has been analyzed. The trend line

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shown an improvement in the unemployment rate from 2013 to 2018. If this trend continues,
Australian economy will be attractive because of its ability to create more jobs for its citizens.
However, an employment rate of 5% and above is still very high.
Woodhouse (2018) noted that part time jobs decline in February 2018 resulting in an
increment in the Australian unemployment rate. This rise was also contributed by the increment
in the participation rate in the Australian labor force. In January 2018, the unemployment rate
was 5.5% seasonally adjusted, this was what was expected to hold for the coming months.
However, the rate rose to 5.6% only a month down the line. In February, the number of jobs
added by the Australian economy were 17,500 despite the 20,000 forecast. Full time jobs were
reported to grow by 64,900 compared to 53,200 for the month of January. However, the fall in
part time jobs was by 47,400; in January, part time jobs rose by 65,600. There was a 60.6%
participation in February which is a fresh new record. The overall participation rate rose to
65.7% which is the highest proportion since 2010.
Unemployment Based on States
Fig: Unemployment in Australia (State based)
Source: Lmip.gov.au (2018)
There is a differential in the unemployment rate across the Australian states (Delalande,
2016). As at March 2018, the Northern territory had the lowest unemployment rate, followed by;
Australian Capital Territory, New South Wales, Victoria, South Australia, Queensland,
Tasmania and lastly West Australia. This means that West Australia performed poorly that all

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the other states (Cassells, 2017). We can say that the highest fall in the part time jobs occurred in
this state or rather, it didn’t experience much growth in full time jobs; or finally we can conclude
that its participation rate was the highest. It means that the standard of living in Western
Australia is lower compared to other states
Unemployment Issues
There are many Australian citizens without productive jobs but are excluded in the
unemployment estimation. They are considered to fall under disguised unemployment. These
include those with disabilities or are sick but without jobs but could do jobs if there were in their
normal conditions. Another is the underemployed workers doing part time jobs but are
considered employed. The other group is those workers forced on early retirement, these people
are still under the working age but are excluded from the estimation. The other form of disguised
unemployment is when many people work in a job that could be done by fewer people. E.g. in
Australia you may find 15 people working in a small family business; they may be considered
employed but in the real sense, if the job could be done by 5 people, the other 10 are
unemployed.
Recommendations
The unemployed and the employed should make their decisions concerning jobs wisely to
avoid falling on the unemployment trap which might last for long. The unemployed can lower
the level of frictional unemployment by not choosing jobs, these people may engage in
underpaying or lower standard jobs while waiting for that job matching their skills to be
presented to them. The government can also improves the conditions of job searching by making
the information on the firm’s needing employees readily available to the job seekers, and the
information on the job seekers qualifications to the firms needing employees. This action will
lower the time taken before the two match up. Those who are employed should understand the
costs of unemployment and they should not quit jobs to look for other jobs, instead, they should
continue staying in their job but still continue applying for other jobs, once they get the new job,
quitting is now worthwhile.
The government should take seriously the key factors accelerating the Unemployment
rate and take immediate actions. One of the most important actions would include a reduction in
the corporation tax rates. Favorable domestic production costs will prevent firms from shifting to
other economies bearing the fact that it also involve big costs. The costs are high and they should

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be lowered in order to enable businesses to expand and growth. The closed businesses may even
find it attractive to reopen their businesses thus creating additional jobs. The other action would
be to set a rule of how wages will be raised and after what duration to avoid union pressures
occurring every now and then.
Conclusion
The government’s policy attention is only on the structural and cyclical unemployment
since their impacts lasts for long. The short terms forms doesn’t attract any attention since they
are expected to be resolved after a short period. It is difficult to maintain a low unemployment
rate in Australia, this is because there exist various pressure on unions on the wage rates. Unions
are demanding higher pay for the employees which is greatly weakening the demand for
employment. There is no single period the Australian economy will be able to achieve an
equilibrium in the labor market given such pressures.
In the year 2018, there has been a growth in the number of full time jobs, a decrease in part time
jobs and an increase in participation rate. This has resulted in an increased unemployment rate.
Thus, it can be concluded that part time jobs play an important role in providing employment in
Australia. The increase in full time jobs was neutralized by the decrease in part time jobs. In this
paper, it has been deducted that most of the key factors accelerating the unemployment rate
could be easily controlled by the Australian government.

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