Unemployment and Wages: An Economic Analysis - ECON152 Essay, 2018

This essay delves into the macroeconomic concepts of unemployment and wages within the labor market. It begins by defining unemployment and highlighting its significance, referencing Australian unemployment statistics from 2018 to illustrate trends. The essay explores various causes of unemployment, including education systems, population growth, and government policies, emphasizing the need for both demand-side and supply-side strategies to promote employment. It then discusses wages as monetary compensation, influenced by skills, supply and demand, and the role of labor unions. The essay examines the labor market dynamics, where supply and demand influence wage levels and concludes by reiterating the importance of the labor market and the role of government policies in achieving full employment and economic stability, while also considering the impact of supply and demand on wages. References to economic literature support the analysis.

Running head: ECONOMICS 1
Economics
Student’s Name
Professor’s Name
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Date

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Unemployment and wages in the labor market
Macroeconomic is a branch of economics that deals with macro issues in the economy. It
provides explanation to aggregate phenomena that affect a country’s economy and the economy
of the whole world (Agénor & Montiel, 2015).It is different from microeconomics that deals with
allocation issues within the household. This essay discusses wages, unemployment, and the
general labor market. In the current world, news about agitation by labor unions to have
minimum wages increased are common. Most governments also treat unemployment especially
among the youth with utmost priority as they seek to achieve levels of full employment.
Unemployment is a situation in which human resources are readily available and are
capable of being utilized to generate returns but are either underutilized or completely unengaged
(Keynes, 2018). Labor is an important factor of production besides capital and enterprise.
Optimum utilization of labor increases productivity while unemployment breeds lower economic
growth and a poor society. In Australia, unemployment rate as at September 2018 stood at 5.2%.
The Australian Bureau of Statistics reported that, unemployment declined by 26,500 from
August. The statistic continues the continuous steady decrease in the rate of unemployment in
Australia in the recent months. Figure 1 below shows the trend of unemployment rate in the
country between September 2017 and September 2018. From the graph, it is evident that the rate
of Australians who are involuntarily unemployed has been declining steadily over the last one
year.

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Figure 1
Causes of Unemployment
There are many factors that perpetrate labor imbalance in an economy. The nature of
education system determines the readiness of individuals to take up employment opportunities in
the job market. It has been noted that, the high rate of unemployment especially in developing
countries is contributed by education systems that are white-collar oriented (Mankiw, 2014). Fast
developing countries such as China have an education system that is biased towards technical
skills. Technical skills promote self-employment and innovation and therefore ensuring that
people secure employment opportunities in areas that require skilled labor and specialized
training (Parker, 2018).
The rate of population growth relative to the rate of economic growth also determines
unemployment rate. When population growth is faster than economic growth, jobs created would
not satisfy the rising population (Leamer & Stern, 2017). Rural urban migration, lack of political
good will to fight unemployment, demand inefficiency, and general mismanagement of resources
are other factors that perpetrate unemployment. The government and the private sector should

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therefore corporate in developing demand side and supply side policies that promote
employment.
Wages are monetary remuneration paid to an employee by her employer as compensation
for service offered and time. The tern in most instances refers to daily pay which is different
from salary which is a monthly pay. The amount of wage offered to an employee is determined
by her skills, education, supply and demand factors, and monetary benefits of the work
undertaken (Feenstra, 2015). Employees offering specialized professional services such as
medicine and legal support are highly compensated while those jobs done by unskilled
workforce offer lower wage rates. Labor unions are legally recognized institutions that promote
rights of employees. They consist of employees operating in related professions. The Union
negotiates for desirable wages on behalf of employees.
The labor market is characterized by employees and employers who provide supply and
demand of labor respectively. It consists of companies that hire individuals and skilled and
unskilled persons. When labor demand is greater than supply, minimum wages might rise while
wages are low when demand for labor in the economy is lower than supply.
Conclusion
The labor market is an essential component of the economy. It is characterized by a pool
individuals who are either employed or unemployed and persons that offer job opportunities.
Wages are paid to workers for services offered. Higher wages promote employee satisfaction and
job efficiency. Unemployment occurs when demand of jobs in the economy is greater than
supply. Governments in most countries aim at achieving full employment through implementing
supply side and demand side policies. The aim of monetary policies for instance is to control

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inflation, boost economic growth, achieve full employment and ensure stability of currencies.
Wages are influenced by the supply-demand relationship of labor. When supply for labor is
greater than its demand, wages are pulled down since employers have greater bargaining power
and a large pool of employees to choose from.Contrastly, when labor demand is greater than
demand like in some technical professions, wages are higher.
References
Agénor, P. R., & Montiel, P. J. (2015). Development macroeconomics. Princeton University
Press.
Feenstra, R. C. (2015). Advanced international trade: theory and evidence. Princeton university
press.
Keynes, J. M. (2018). The general theory of employment, interest, and money. Springer.
Leamer, E. E., & Stern, R. M. (2017). Quantitative international economics. Routledge.
Mankiw, N. G. (2014). Principles of macroeconomics. Cengage Learning.
Parker, S. C. (2018). The economics of entrepreneurship. Cambridge University Press.