ECON7200 Economic Principles: Labour Market and Unemployment Analysis

This assignment provides a detailed analysis of the Australian labor market using seasonally adjusted data from February 2019, sourced from the Australian Bureau of Statistics. It calculates the size of the labor force by summing employed and unemployed persons. The unemployment rate is computed using the standard formula, and the working-age population is derived from the participation rate. The assignment explains the importance of seasonally adjusted data for accurate economic inferences and distinguishes between structural and cyclical unemployment, suggesting that cyclical unemployment contributes more significantly to the current rate due to the economic slowdown. Finally, it argues against targeting zero percent unemployment, advocating for the natural rate of unemployment to avoid economic overheating and labor shortages. The analysis references key macroeconomic principles and relevant academic literature.

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STUDENT ID:
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1

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The relevant data to be used is highlighted below.
Source: ABS
All the questions below have been answered considering the seasonally adjusted figures for
February, 2019.
PART A
The size of the labour force would comprise of both employed persons as well as
unemployed persons.
Total size of the labour force (February 2019) = 12,763,400 + 664,300 = 13,427,300
PART B

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The computation of the unemployment rate needs to be explained. The relevant formula for
the unemployment rate computation is given below (Barro, 2017).
Unemployment Rate = (Unemployed people/total size of labour force)*100
Unemployment Rate = (664,300/13,427,300)*100= 4.9%
PART C
The objective is to compute the working age population for February 2019. This has been
carried out below.
Participation rate (February 2019) = 65.6%
The mathematical expression for computation of participation rate is given below (Froyen,
2014).
Participation rate (%) = (Number of people participating in labour force/Number of people
eligible to participate in labour force) *100
Number of people participating in labour force (February 2019) = 13,427,300
Hence, 65.6 = (13,427,000/Number of people eligible to participate in labour force)*100
Solving the above, number of people eligible to participate in labour force = 20,468,445
Hence, it can be concluded that working age population in Australia in February 2019 was
20,468,445.
PART D
With regards to unemployment, there are seasonal trends which would lead to periodic
swings. However, this would be attributed to the seasonal trends rather than the underlying
economic situation. As a result, the data for macroeconomic indicators is adjusted for
differences in seasons. The seasonally adjusted data for unemployment is more representative
of the situation of the economy and thereby would lead to correct inferences and decisions
being made. By looking at seasonally unadjusted data, incorrect conclusions may be drawn as

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the increase or decrease in unemployment may be attributed to periodic seasonal fluctuations
but would be attributed to growth or slowdown in economy (Mankiw,2016).
PART E
Structural unemployment is the unemployment which is attributed to lack of availability of
skilled labour. In case of structural unemployment, there is demand from employers but the
positions remain vacant as the requisite skills are not available with the unemployed people
(Koutsoyiannis, 2015). On the contrary, cyclical unemployment is caused due to changes in
the demand of labour which tends to increase or decrease in line with the economic growth.
When the economy is in downturn, then the economic activity would slow down resulting in
lower demand for labour leading to higher cyclical unemployment (Krugman & Wells, 2016).
Only a small portion of the current unemployment may be attributed to the above two types
of unemployment. A larger contribution is expected from cyclical unemployment since the
economy is slowing down.
PART F
The target for unemployment should not be 0%. This is because this is practically impossible
and also such an endeavour could lead to demand supply mismatch of labour. Some amount
of frictional unemployment would always exist in the economy as there are some people who
are looking for better opportunities and thus involved in the recruitment process (Barro,
2017). Also, in case of zero unemployment, any surge in economic activity would create a
shortage of labour and cause increase in wages. This trend in the medium terms would lead to
inflation and hence responsible for the overheating of the economy. As a result, it is
recommended that the government should aim for the natural rate of unemployment
(Mankiw, 2016).

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References
Barro, R. (2017). Macroeconomics: A Modern Approach (4thed.). London: Cengage
Learning.
Froyen, A. (2014), Macroeconomics (3rded.). New Delhi: Pearson Education.
Koutsoyiannis, A. (2015). Modern Macroeconomics (4th ed.). London: Palgrave McMillan.
Krugman, P. & Wells, R. (2015).Macroeconomics (3rd ed.). London: Worth Publishers.
Mankiw, G. (2016). Principles of Macroeconomics (6th ed.). London: Cengage Learning.