Economic and Social Costs of Unemployment

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Analyse the Effectiveness of government policy initiatives aimed at managing unemployment in Aust & Examine the Extent to which these initiatives may conflict with other macroeconomic objectives in the Australian economy. The labour force can be defined as the section of the population 15 years and above who are either working or actively seeking work. Australia’s current labour force is about 11.5million. Australia’s unemployment rate is calculated as the number of unemployed persons between 15 and 65 who are actively searching for work, over Australia’s total labour force. The Current Unemployment Rate from March 2012 is 5.2%. The Australian governments have struggles with the challenge of the achieving a sustained reduction in unemployment. A variety of strategies have been used over the last three decades.These strategies include numerous micro and macro-economic policies, normally known as a policy ‘mix’, where the macro policies are short term and micro policies are long term. There are a number of types and causes of unemployment in the Australian economy, all of which impact upon Australia’s economic performance. In order to understand the consequence of unemployment, types of unemployment must first be explored. Cyclical unemployment is that which takes place during a downturn in economic activity or a recession. Structural unemployment is caused when a company or industry undertakes structural changes, seasonal unemployment is when an employee’s job only lasts through a particular season, Frictional unemployment is when an employee is between jobs and hardcore unemployment exists when a person is unemployable due to personal, mental, or physical characteristics. Full employment has been a major goal of the Australian government. During the 92’ recession unemployment reached 11.2% and in 20 years it has fallen to 5% and in 2012 to just above 5%. The unemployment rate at full employment is known as the Natural Rate of Unemployment (NRU), or the Non-Accelerating Inflation Rate of Unemployment (NAIRU), because at this level of unemployment, inflation equals zero. Australia’s NRU is 6% of the workforce

Real
Wage

W
Real
Wage

W
D
D
S
S
QN
QN
QL
QL
U
U
E
E
LF
LF
Inflation %

6%

3%
LRPC
Unemployment %
6%
3%

Natural Rate of Unemployment
Inflation %

6%

3%
LRPC
Unemployment %
6%
3%

Natural Rate of Unemployment

The Natural Rate of Unemployment
The demand for labour, D is a negative function of the real wage, and the supply of labour, S is a positive function. Vertical line LF denotes the labour force. Full employment is where equilibrium occurs – real wage W and labour quantity QL. The distance EU (QN – QL) is equivalent to the natural rate of unemployment. The Natural Rate of Unemployment

The demand for labour, D is a negative function of the real wage, and the supply of labour, S is a positive function. Vertical line LF denotes the labour force. Full employment is where equilibrium occurs – real wage W and labour quantity QL. The distance EU (QN – QL) is equivalent to the natural rate of unemployment. The Long Run Phillips Curve

The Short Run Phillips Curve (SRPC) shows the short run trade off between the inflation rate and unemployment rate. The Long RRun Phillips Curve (LRPC) indicates that there is no tradeoff between inflation and unemployment in the long run, and that the economy’s natural rate of unemployment is 6.5% that the economy’s natural rate of unemployment is 6.5%

The Long Run Phillips Curve
The Short Run Phillips Curve (SRPC) shows the short run trade off between the inflation rate and unemployment rate. The Long RRun Phillips Curve (LRPC) indicates that there is no tradeoff between inflation and unemployment in the long run, and that the economy’s natural rate of unemployment is 6.5% that the economy’s natural rate of unemployment is 6.5%

Full Employment can be achieved by multiple macroeconomic policies. The Macroeconomic...
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