Economic for business Essay Example
Unemployment in Australia last 5 years
Unemployment can be defined as the number of people willing and able to work but are not in a position to secure job opportunity. There are many different types of unemployment depending on the nature and situation of unemployment. However, these types of unemployment are categorized into two major categories; voluntary and involuntary unemployment. The various types of unemployment include; frictional unemployment- this type of unemployment involves workers leaving their jobs and start looking for new jobs, cyclical unemployment- this is caused by business cycles, particularly the contraction phase cycle. Seasonal unemployment- this type of unemployment occurs when people loses their jobs during particular seasons. It is common in the agricultural sector, hotels and catering and tourism, structural unemployment- this type of unemployment occur as a result of technological changes in the economy. Due to technological growth, workers may be sacked and replaced with robots which will operate the machines.
Views of economist on unemployment
Different economists have different views on unemployment. According to the classical unemployment will occur when real wage in the economy is above the equilibrium point. Setting the wages above the market clearing point will ensure that labor surplus. The classical argue that the problem of unemployment would be solved if the wages are flexible.
Diagram A: classical representation classical unemployment.
Q1 is the quantity of labor supplied in a free market. The Keynesians however, criticizes the classical argument saying that the main problem that may lead to unemployment is due to shortage of the aggregate demand (AD) in the economy. For instance, by cutting the wages, the aggregate demand in the economy would reduce. Therefore it would not be effective to solve unemployment by cutting the wages.
In Australia according to the Australian Bureau of Statistics (ABS) almost a third of all the youths are unemployed. The high rate of unemployment of the youths who ranges between 15-24 years has for long remained high since the global financial crisis occurred. Since then the rate has remained high for almost a decade. However, in the past there were few people in Australia were unemployed, but due to the high population growth unemployed has been reported to increase. The number of job seekers has increased over the last five years in relation to the past years. The increased number unemployed youths have been linked to their low skills and low work experience. The government, however, has insisted that the labor market should loosen the tight market situations by setting a lower work experience and skills in order to accommodate most of the youths. This would reduce the struggles by the job seekers. The rate of unemployment in the last five years has doubled leading to over 300000 youths who are willing and able to work unemployed. This amounts to 13.51% which is twice the number of adults unemployed in the country.
In Australia not only the youths who face the challenge of unemployment but also mature aged people. Mostly, the aged will be unemployed either due to voluntary retirement or exiting out of the job involuntarily. The employers also tend to discriminate the aged workers and a result the aged people either lose their jobs or find it difficult to secure job opportunities within the Australian economy. The aged people also are associated with outdated skills, poor levels of education this contributes structural unemployment.
The following are the factors that have contributed to youth unemployment in Australia
1. Financial crisis- the main cause of the high rate of unemployment within the country was indirectly caused by the financial crisis. This is because the education sector, labor market among other structures were highly affected by the business cycles that occurred particularly the recession phase. The problem created during the global financial crisis exists till to date.
2. Lack of capital access by most of the youths- most of the youths in Australia are not in a position to access affordable loans for them to start their own businesses. Self-employment would help reduce the number of job seekers within the country but due to lack of initial capital, many youths remain either unemployed or under-employed.
3. Skill mismatch has been also another reason why the rate of unemployment has remained high in Australia. There are many youths who are done with their education and are seeking to be employed. However, the available job opportunities in the labor market require an individual with advanced skills that most of the youths never had. This is the main reason why most of the youths in Australia are experiencing a tough transition in the school-to-work. This reason has also made most of the businesses not to get the suitable candidates for their advertised job opportunities. Similarly, there are youths who feel underemployed since they hold advanced degrees in and get jobs which do not match their skills resulting in frictional unemployment.
4. Lacking life skills and entrepreneurial skills- apart from skill mismatch, the other main cause of unemployment in the country is that most of the school curriculum has less emphasis on entrepreneurial, employability and vocational training. This reduces the connection between the private sectors and the training institutions in order to uphold work experience and training.
5. Inflation in the country- the higher cost of health and the high fuel cost has contributed to inflation in the country. This has led to increased rate of unemployment in the country. The reason for unemployment can be explained by Philip’s curve. The Philip curve indicates that there is a negative relationship between inflation and unemployment. However, this will hold in the short run. It indicates that as the level of unemployment tends to increase, the rate of inflation tends to fall. Therefore, as the government tends to cure the increasing level of inflation as a result of the rise in the cost of fuel and health services the rate of inflation will increase throughout the country. This is because a trade-off between the rate of unemployment and the rate of inflation exist. Therefore, increasing the rate of inflation in the country will result in lowering the rate of unemployment.
Diagram B: the short run Philip’s curve
Recommendation that would help reduce the rate of unemployment in the country
The country to increase the number of technical and vocational education training institutions (TVET), by increasing TVET institutions the school leavers will be in a position to acquire vocational training which will increase their employability. This would also help the youths improve their innovation thus promoting self-employment. The other government should also ensure affordability of loans and credits. Most of the youths and the small business people are not in a position to acquire loans. The government should implement policies that will enable people to take loans and will promote the capital creation and will contribute to a general economic growth of the entire country. The country should also put in place some reforms in their structures. These reforms will favor economic growth and reduce the rate of unemployment within the country. Such structural reforms would include; reforms in the tax system, reduction or elimination of barriers to competitive marks and the other reform relevant to solving unemployment is the adoption of strategies that are based to job-creation.
Measures taken by Australian government to solve the problem of unemployment
i. Creation of employment; the country’s labor market programs focuses employability, instead of addressing full employment, it is a short term solution. This is because the number of long-term unemployed people who will be fully employed will be few.
ii. Career advancement; the government in collaboration with the private sector has encouraged most of the long-term unemployed to join either casual or part-time jobs. This is viewed as a stepping stone into permanent jobs. It is meant for the youths to gain more experience and relevant skills.
iii. Government-employer engagement; the employers have a major role to play in the employment of job seekers. The employers are also perceived to have less trust to the long-term unemployed people in the country since their perception is that such individuals are either less motivated, lack relevant skills or experience and therefore, prefer to leave their jobs vacant. The government has struggled to improve the condition but it has been challenging due to the competition in the job market and also the complexity of the process.
iv. Offering of training programs; the government has introduced vocational training program aiming to provide the youths with relevant skills ensuring their employability.
Modern economists have recommended a number of ways in which the countries can eradicate unemployment in the country. They include:
a) Changing of the education system; according to the modern economists, there is a need to change the education pattern in accordance with the changes in the level of technology. Those students who qualify for higher education should be admitted to institutions of higher education while the emphasis is given to the vocational education. The change in the education sector will increase employability the graduates after completing their studies. Vocational training will equip the candidates with relevant skills and experience.
b) Establishment and expansion of employment exchanges; individuals are likely to be unemployed due to lack of information concerning employment opportunities. The governments are supposed to increase the employment exchanges.
c) Increasing in the level of production, and increasing the level of industrial and agricultural production in the country will increase the level of employment in the country. it si therefore important for the government to increase the level production. This will also contribute to an increase the country’s level of GDP. As a result, unemployment will be, reduced. The government should also give a priority to programs such as; irrigation, controlling of floods, rural electrification, roads, and power. Such programs will provide adequate employment to the citizens. The citizen will also be encouraged to increase investment which in return will have a positive impact on employment.
d) Changing and adopting policies that increase employment in the country; one of the objectives of macroeconomics, monetary policy, and fiscal policy is to ensure full employment is attained. The government for that reason should implement policies that will make sure that the citizens are employed. Policies that increase employment opportunities would be suitable for the expansion of the country’s labor market. Encouraging multinational corporations would also positively contribute positively to the eradication of unemployment in the economy.
e) Increased in the rate of capital formation; development of the banking system and other financial institutions will encourage the citizens to access loans and to invest. This will accelerate the rate of capital formation within the economy. The government should, therefore, encourage activities that will generate more employment opportunities in the country. it should also ensure that the capital ratio is maintained at low level.
f) The government should also decentralize industrial activities within the country; in order to ensure regional balance, it would be better for a country to decentralize the industrial activities. This will ensure that employment opportunities are available in different areas of the economy. However, by centralizing the industrial activities in one region will result in a large number of unemployed people in the underdeveloped areas and regions.
g) Controlling of the country’s population; high population growth in a country will lead to depletion of the natural resources. This may lead to the country spending more on consumption and less is invested. This will finally contribute to the high level of unemployment in the country. The country should, therefore, keep the population under control so that the problem of unemployment is solved. The government should, therefore, implement effective family planning programs.
h) Using fiscal policies; this is the use of government expenditure and taxation in order to control economic activities. These fiscal tools will include taxation- this one of the basic fiscal policy tools a government can use in the reduction of unemployment. High taxation by the government means that the consumers have a low disposable income. With a low disposable income, the consumers will reduce their consumption. By reducing consumption, the business will collect low level of revenue. The low level of revenues may contribute to the enterprise to lay off workers or reducing the number of new workers employed thus contributing to unemployment in the economy (Cockx & Bart 265). Therefore the government can encourage employment by reducing the level of taxes. The other fiscal tool is government spending- increasing government spending in financing infrastructural development will create more job opportunities within the country. For instance, when the government funds the building of railway lines, many people will secure job opportunities. This will increase the level of disposable income by consumers. The businesses will, therefore, collect higher revenues as a result of the increased level of consumption by consumers. This will enable the businesses to hire more people in the firms.
i) Structural reforms; these are policies that are aimed at reducing the wages of the workers. With a lower wage, the firms are in a position to increase the number of workers and this will help reduce the problem of unemployment.
j) The other policy a government can adopt in order to reduce unemployment is a policy of labor distribution; in this policy, the workers are expected to work for few hours. They earn less but many workers are able to work. This will also increase marginal productivity of a country.
There is a negative impact of unemployment on the government. This is because the government will not be in a position to raise revenue to fund its activities. With the high rate of unemployment in the country it implies that the people paying taxes are few, also the people with disposable income are few. An individual having a low disposable income in the economy will not spend much on goods and services and a result the businesses will not expand or thrive resulting in economic stagnation.
Application of fiscal policy in solving the problem of unemployment may lead to increased government debts. Reduction of taxes and increasing government expenditures may positively contribute to economic growth. However, by reducing taxes, the government will be collecting low level of revenue, with increased government expenditures; the expenditure will exceed the total revenue. The government will, therefore, be operating on a deficit. The government will, therefore, be forced to borrow either internally or externally.
The country should adopt policies that will ensure that most of the youths are employed. The government should improve the education curriculum in order to emphasize on vocational training. This will help the employers to have more confidence in the candidates making it easier for them to secure jobs. The Australian government should also ensure that there is affordability of loans. This will accelerate capital creation which in return will promote employment in the economy. The government should also set policies that will encourage employment within Australia. Allowing multinational corporations within the economy would increase the level of employment. The country should also invest in industrial sectors, in the agricultural sector and also in the education sector. Investing in the education sector will ensure that the level of structural unemployment is reduced. Investing in the agricultural sector will reduce seasonality in employment. All these sectors will contribute to a higher level of GDP in the country.
Cockx, Bart. Youth unemployment in Belgium: diagnosis and key remedies. No. 66. IZA Policy Paper, 2013.
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