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I. Introduction:
Unemployment rate is one of the leading economic indicator that reflects the ups and downs of economic cycle. Policymakers, business analysts and the economists can have a clear idea of the economic outlook of any nation by analysing the unemployment rate.
During the period of economic boom, when the economy has adequate production of goods and service unemployment rate is found to be low. At the same time contraction of economic activities are consistent with higher unemployment rate. If any economic fluctuations occur, it can be reflected in the unemployment data. One of the primary objective of major economic policies is to generate employment opportunities and maintain the full employment for the nation.
The key aim of this report is to gain a deep insight on the issue of unemployment with special reference to Australia. The time period of this study is selected for last five years ( 2012-2016) The current study examines the types of unemployment and its consequences on Australian unemployment rate. The paper further investigates the current economic policies aiming to reduce the unemployment rate in Australia.
II. Unemployment definition:
A person is said to unemployed if he does not have any job but is willing to do jobs and actively looking for jobs. In order to be counted as unemployed in the economy, a person must be at the age of above 16 years. If a person actively searched for a jib one year back and not looking out for jobs during the last four weeks of the study then the particular individual will count as a discouraged worker. Needless to mention that, macroeconomic study does not include discouraged workers into the calculation of unemployment rate. The most common and widely accepted formula for unemployment rate is as follows: (AMADEO, Calculate the Unemployment Rate Formula, 2017)
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III. Business cycle and unemployment rate:
Business cycle has a vast significance in macroeconomic study. A typical business cycle captured the natural rise and fall of economic growth. Business cycle offers the clear guidelines to the policymakers for policy implications. Every business cycle is consistent with four different phases: expansion (recovery), peak, Contraction (recession) and trough. Every economy has gone through their own business cycle though the length and depth of each phase substantially differs across the countries. According to the phase of current business cycle, government and RBA has devised their fiscal and monetary policies. (AMADEO, 2018)
Unemployment rate has close relation with the business cycle. In general, when the economy contracts with a fall in economic activities, the unemployment is on rise. In the contrary, during the economic expansion in the business cycle, we observe a fall in the unemployment rate.
Recovery
Prosperity
Economy
Peak
Trough
Expansion
Contraction
Time
Australia has also an association of business cycles with the unemployment rate. But the striking difference of Australia with other countries is that Australia does not enter into recession for last 26 years. It is the lucky country to exhibit the economic growth for consecutive 104 quarters. With the help of strong financial system, sound economic policies and diversified economic drivers, Australia managed to escape the crisis like Asian financial crisis and even GFC. During the global financial crisis when all other advanced economies were hardly hit by the devastating impact of the crisis, Australia remained resilient. The economy has weather out such a deep and long-lasting crisis in a far better way than any other countries in the advanced world. So during the period of our study, we do not have any reference of economic recession in Australia. Even the economic expansion is there, the growth rate hovers around 2% for most of the years. Australia entered the recession last time in 1991 when the unemployment rate has reached to as high as double-digit level. Thus, the close link between business cycle and the unemployment rate is also evident from Australian business cycle. (OECD, 1999)
IV. Types of unemployment:
Macroeconomic study explains the fact that people can be unemployed but they van be unemployed for different reasons. All the people who is identified as unemployed is not unemployed for the same reason. Unemployment can be broadly categorised into following types:
1. Cyclical unemployment:
Cyclical unemployment is the outcome of economic downturn. When the economy contracts and operates below the potential level, it enters in into economic recession. An economy is said to enter the technical recession, as defined in macroeconomics, if the economy exhibits negative economic growth at least for two consecutive quarters. During the period of economic recession, there is an obvious fall in production of goods and services that leads to huge layoff in many of the sectors of the economy. Such unemployment rate is called cyclical unemployment. By the definition and nature of cyclical unemployment it can be said that cyclical unemployment rises during economic recession and falls when the economy prospers. It is a short-term phenomenon and eliminates in the long run as the economy moves to the recovery state.
2. Frictional Unemployment:
This frictional type of unemployment is unavoidable in the sense there is always some workforce who are not happy with present work and searching for the permanent one. This temporary phase of unemployment is known as...