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7303AFE Economics | Examination of Australian Economy

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1 Organize yourselves into groups of 4 to 5 students and give your group details to your lecturers.


2 Choose any ONE topic out of the following list:
a.Examine industry reforms in one of the following industries: tourism, meat and livestock, agriculture, and hospitality in Australia in the last 10 years. Analyse its impacts on Australian economic growth.
b.Discuss Australian GDP components and economic growth during the last 10 years. Which industries have the highest growth and what are the main drivers for that growth? Analyse Australian Government major policies to promote economic growth during that period.
c.Examine unemployment issue in Australia in the last 10 years and its effects on Australian economy. Discuss government policies towards reducing unemployment.

d.Investigate fiscal policy of the current Australian government - its issues and impacts on the economy.

e.Analyse the impacts of the 2008 global financial crisis (GFC) on Australia and how did Australian government use macroeconomic policies to stabilise the economy.

Answer:

Introduction

Unemployment is not a clear-cut theory. Different scholars have examined the unemployment phenomenon from different viewpoints. Like the classical economists attribute unemployment to the effect real wages and market clearing wages have on the available jobs. While John Maynard Keynes scrutinizes this subject by attributing unemployment to aggregate demand effects, according to Keynes real wage is determined by employment (Keynes, 2018, p. 26).

For the purpose of this paper we will define unemployment as the situation of actively seeking for employment but not being currently employed.  The unemployment rate is expressed as a fraction of the unemployed individuals divided by total labor force population (Gustavsson & Österholm, 2014, p. 548). According to the data released by International Labor Organization unemployment rate currently stands at six percent. Unemployment rate is fundamental indicator to the economic wellbeing. It points out if the economy is optimizing efficiently or the economy is not operating at the peak, as it is expected that everyone is to be employed at some wage in optimized economy. Unemployed individuals within the labor force are not only non-productive but also a drain of the society available limited resources (Lundval, 2014, p. 254).


Unemployment is an ongoing economic issue which is both complex and comprehensive in nature due its long lasting political, psychological, moral development and social effects (Arulampalam, 2013, p. 586). Some key types of unemployment include: structural unemployment also referred to as skill gap, it is unemployment which arises when there is a mismatch between skills laborers in the economy possess and the skills demanded by the employers in the economy. Secondly type is frictional unemployment, results from time spent by a worker transitioning from one job to another. Other types include: cyclical unemployment, involuntary unemployment and classical unemployment (Weiss, 2014, p. 242). This paper aims at examining the unemployment records in Australia for the last ten years, diagnosing its effects on the Australian economy and finally investigating the existing government policies employed to curb unemployment.

Unemployment rate in Australia for the last 10 years

The Australian economy has experienced enormous changes in its structure in terms of what it is producing and how. The technological changes have been the major cause of employment disturbance in the economy. The Australian Bureau of Statistics (ABS) have been conducting labor force survey on monthly basis. The aim of this house study is to reveal fundamental estimates of unemployment rate in the Australian economy (Australian Bureau of Statistics, 2013, p. 243). The unemployment rate increased by 1.75% between the years 2008-2009, this was the period of economic downturn. It moved from 4% to about 5.75%, during this period there was a decrease in the average hours of work per employee, total hours -worked in a week by an individual declined significantly. This indicates a shift in the structure of the employment from full-time to part time employment (Chang, et al., 2013, p. 239).

In the year 2010, the unemployment rate in Australia remained stable at 5.1%. The total number of people employed within the economy increased by 45900 people, the employed population increased to 11.12 million people. In the following year 2011, the number of employed people decreased by 29300, this saw the unemployment rate increasing to 5.2%, this effect was triggered by fall in part time jobs. These figures remained steady in the year 2012, the increase in employment was steered up by the increase in full time jobs to stabilize the labor market. Unlike in the year2013, the unemployment rate climbed to 5.8%, this is considered as post-global financial crisis as described by the economists’ forecast. It was majorly contributed by the loss of both the full-time and part time jobs. During this period youth unemployment rose to 17.3% (Arulampalam, 2013, p. 46).

In the following year 2014, the figures got worse with the unemployment rate reaching 6.1% by September. The number of unemployed persons increased by 29700 persons with total population of the employed persons standing at about 11.92 million persons. Also the female part-time employment declined by 31600 persons. In the periods of years 2015-2016, the unemployment rate in Australia have floated in the scope of about 5.6-5.8 %. The figures released by the Australian Bureau of Statistics indicates that this is the lowest unemployment rate range since the year 2013 (Dolowitz, 2015, p. 243). It is a good proof for the government efforts to increase employment growth in the Australian economy.

Recently in the month of August 2018, the figures released by Australian Bureau of Statistics (ABS) reveals that the rate has unexpectedly dropped to 5.3%. More than 44,000 jobs have been created in the economy. This is also attributed to the increased information about the available jobs within the economy. The total number without jobs have remained at its lowest level since the year 2012 (Ball, 2017, p. 256).

Effects of unemployment on Australian Economy

Unemployment is one of the key life experience of an individual. Unemployment effects on the Australian economy be broadly categorized into individual, social and socio-political impacts. Its impacts are widespread as it not only affect the unemployed individual but also the family members and generally the entire community. For example, the loss of income of the parent affects the living standards of the family and also the coming generation. Impacts of unemployment can be long lasting (Green, 2013, p. 273).In addition to the personal impacts of unemployment, it is also a forfeiture of appreciated resources to the economy at large. As some people leaves the economy in search of job elsewhere.

This constitutes the insightful economic, financial and budgetary effects of unemployment. Those who leave the labor force reluctantly do not have the resources needed for contented and stretched retirement. The resulting price paid by the community is increased income and health support despite low productivity due to the loss of human capital. Usually, those who are employed benefit from economic growth while the unemployed may be demoted to secondary status (Layard, et al., 2015, p. 257).

The short term unemployment basically reduces an individual’s income level while the long term unemployment reduces his ability to save for retirement and other long term goals. Since his superannuation contributions vanish and his economic power to save from the disposable come is also lowered. Most of the Unemployed Australian’s in the labor force have been victims of both the short term and the long term effects of unemployment with most of the affected group being the mature-aged people, this is according to the study conducted by the Australian Bureau of Statistics (ABS) in2016 (Cheshire, 2016, p. 167). Since most of them have already existing financial obligations such mortgages and children’s education.

The recent records from the Department of Family and Community Services (DFaCS) discloses   a disturbing impact of unemployment, there is an increase in the number of mature aged persons receiving income support. This is alarming since prolonged periods of dependence can erode the skills of an individual and also their savings, consequently it can increase marginalization within the community (Glover, et al., 2013, p. 234). This harms the economic growth by generating redistributive pressure and further driving people to poverty, eroding self-confidence resulting to unrest and conflicts.

It is reported that an economy with high unemployment, does not use all the available labor to it. The economy is not optimizing available resources hence it is operating below its production possibility frontier. The skills of the unemployed laborer go to waste and if the condition is prolonged then there is high risk of the laborers permanently losing their skills. Their life expectancy maybe reduced by seven years (Eisenber & Lazarsfeld, 2015, p. 355). The economy with underutilized resources may result a slow economic growth as compared to Alternative. High unemployment rates can encourage protectionism and xenophobia as the domestic or native workers fear that foreigners are still their employment opportunities. The effort to protect the existing domestic jobs usually include imposing legal barriers to control influx of foreigners, crafting immigration barriers and other applicable trade barriers against the foreign competitors.

The impacts of unemployment are felt also in regional economies owing to its smaller scale. Organizations based in regional Australia have indicated through their submissions that restructuring have significant flow-on effects on their economies. The report released by the Australian Workers’ Union (AWU) shows that people who are affected by downsizing and industrial closures across the region are the basic-trade skilled or low skilled individuals. The socio-political impacts of unemployment on the economy of Australia include civil unrest (Griffin & Svensen, 2016, p. 543).

Most people in Australia can effectively manage unemployment if only it lasts for short period. Not when the unemployment spell is prolonged, as it is associated with psychological, financial and economic reparations. All these collectively impact negatively on the unemployed individual’s welfare, their families and the general growth of the economy. In a nutshell, unemployment is a painful loss of all the valuable productive resources which could help to steer economic growth and improve living standards of the partisans in the economy. This is responsible for the increased marginalization within the economy as impacts of unemployment are not evenly distributed within the country (Lilien, 2014, p. 799).

Government policies aimed at reducing unemployment in Australia

The Australian government have been dedicated to lower the unemployment rates below 4%. Low unemployment rates means that there are fewer people who are actively seeking for job as compared to the population of active workers. Low unemployment facilitates efficient use of technology and resources so as to achieve optimal production levels (Dolowitz, 2015, p. 26). This is beneficial to the companies and the general economy as a whole. Also it becomes easier for the domestic workers to find jobs when the unemployment is low. It is also a positive indicator to the firms that the market place demand is stable even for the future, as the consumer buying power have increased. Firms are more likely to hire more workers so as to expand on their productions. And most importantly low unemployment reduces the burden on the government and the taxpayers to support the unemployed within the economy (Dolowitz, 2015, p. 29).

  Due to these benefits among others, the government have been actively involved in the process of making and implementing policies with an aim to reduce unemployment rates in Australia. These policies can be classified into two major categories as demand side policies and supply side policies. Demand side polices are meant to increase or decrease aggregate demand of consumers and also to contract or expand the economy (Dolowitz, 2015, p. 28). There are two major demand side policies namely: fiscal policies and monetary policies.

Fiscal policies involves the government to deliberately alter its own expenditures and taxation so as to affect the economy. To reduce unemployment resulting from the disequilibrium between supply and demand; demand-deficit unemployment, then there is need for the government intervention through fiscal policies to expand the economy. This involves the government increasing its expenditure on goods and services, and decrease its taxes. This is meant to expand the aggregate demand and also to increase real output (Cheshire, 2016, p. 234). This eventually increases real gross domestic product (GDP) and reduces unemployment although there is a risk of demand-pull inflation arising. Low taxes increases the consumers disposable income, they are able to purchase more goods and services in the economy. This mechanism is referred to as expansionary fiscal policy (Sarno & Taylor, 2015, p. 672).

Monetary policies involves the government intentionally altering the interest rates and or supply of money to affect the economy. During economic recessions, unemployment rates increases as the purchasing power of the consumers is lowered. The government can correct this situation through the central bank. Lowering interest with the hope that the investors will be enticed with easy credits. An increase in money supply causes a decrease in the interest rates and equal increase in nominal output. The consumer spending also goes up. This collectively increases the aggregate demand. The level of unemployment declines due to increased investments in the economy by those borrowing loans and the increased aggregate demand (Woodford, 2011, p. 256).

Generally the demand-side policies are used to influence the aggregate demand in the economy. Aggregate demand is composed of consumer spending, government spending, net exports and investments. These policies are mainly used for short term changes. The inflation that results due to the expansionary policies can be controlled through contractionary policies mainly by increasing the interest rates to relax the economy (Friedman, 2012, p. 231). Demand-side policies are more effective in controlling the

The supply-side policies are only effective in controlling long term structural unemployment. Supply side unemployment includes: frictional, classical and structural unemployment. They deal with micro-economic concepts which aim at solving the imperfections in the labor market and reduce unemployment. The government provides interventionists policies in an attempt to reduce unemployment level in Australia. Examples of these policies includes; better education and training, reducing the power of trade unions, employment subsidies and improved labor market flexibilities (Fernández-Villaverde, et al., 2014, p. 260).

The Australian government have employed sufficient resources to provide better education and training to equip the long-term unemployed with new skills that will help them to find jobs in the industries within the economy.  This helps to reduce the structural unemployment since the workers acquire skills that matches the industrial demand. The Australian government intensively advertises vacancies in the government offices, better job information helps to reduce frictional unemployment. The workers don’t have to spend more time in search for jobs within the economy (Ball, 2017, p. 367).

Trade unions usually advocate for minimum wages, increment in wages, this causes classical unemployment where wages are high above the market equilibrium. The Australian government have employed measures to curb the trade unions influence allowing the wages to fall to the equilibrium for the labor market to clear (Griffin & Svensen, 2016, p. 277). There is also improved geographical mobility so that the workers are not confined to one economic region by providing tax breaks to the firms set up in depressed areas, this helps to reduce the geographical unemployment.

Conclusion

Unemployment also have primary benefits as more people are available for hire. This means that both new and old business can recruit new staff with ease, without headhunting for employees from other existing organizers. It is also beneficial to the employed group in the workforce as it prevents inflation providing reverse army of labor that helps to monitor wages. Full employment also cannot be achieved since workers will avoid work when wages fall and they are also likely to spend less effort at work. Ordinarily the employers avoid shirking by keeping wages from decreasing so low that laborers being disinterested such that they become unproductive.

It is also important to note that Australian population is also underemployed. Those who are already classified as employed seeking for more employment opportunities than they already have. Due to the continuous increase of the financial obligations, those who are employed may seek for a better job or more jobs within the economy so as to effectively manage their financial responsibilities.

All market economies have witness some level of unemployment which is caused by the establishment of new firms, growth, decline and eventually death. This has significant changes in the employment patterns. In present day most Australian citizens prefer to live and seek job within an economic structure which can provide to them steady or secure jobs, stable prices and a high living standards.

Reference list

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Australian Bureau of Statistics, 2013. The labour force. Canberra: The labour force. Australian Bureau of Statistics.

Ball, S. J., 2017. The education debate. Melbourne: Melbourne press.

Chang, S. S., Stuckler, D., Yip, P. & Gunnell, D., 2013. Impact of 2008 global economic crisis on suicide: time trend study in 54 countries. Toronto: University of Toronto press..

Cheshire, L., 2016. Governing rural development: Discourses and practices of self-help in Australian rural policy. London: Routledge..

Dolowitz, D. P., 2015. Learning from abroad: The role of policy transfer in contemporary policy?making. Governance, 17(4), pp. 25-29.

Eisenber, P. & Lazarsfeld, P. F., 2015. The psychological effects of unemployment. Psychological bulletin, 67(5), p. 355.

Fernández-Villaverde, J., Guerrón-Quintana, P. & Rubio-Ramírez, J. F., 2014. Supply-side policies and the zero lower bound.. IMF Economic Review, 62(2), pp. 248-260.

Friedman, M., 2012. The role of monetary policy. In Essential Readings in Economics. London: Palgrave, London.

Glover, J., Harris, K. R., Tennant, S. & Watts, V., 2013. . A social health atlas of Australia.. Melbourne: melbourne press.

Green, F., 2013. Unpacking the misery multiplier: How employability modifies the impacts of unemployment and job insecurity on life satisfaction and mental healt. Journal of health economics, 39(2), pp. 265-276.

Griffin, G. & Svensen, S., 2016. The decline of Australian union density—A survey of the literature. Journal of Industrial Relations, 68(4), p. 543.

Gustavsson, M. & Österholm, P., 2014. Hysteresis and non-linearities in unemployment rates. Applied Economics Letters, 17(9), pp. 545-548.

Keynes, J. M., 2018. The general theory of employment, interest, and money. Berlin: Springer.

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Lilien, D. M., 2014. Sectoral shifts and cyclical unemployment. Journal of political economy, 123(4), pp. 795-799.

Lundval, B. A., 2014. The global unemployment problem and national systems of innovation. In Globalisation, Networking and Small Firm Innovation.. Berlin: Springer.

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