Unemployment In Australia: Causes, Types, And Government Policies

Types of Unemployment in Australia

Australia has always maintained a steady unemployment rate over the years. One of the main reasons of poverty in Australia is the unemployment. Unemployment rate is the indicator of the full capacity working level of the economy. The rate of unemployment is the measure of the level of unemployment in the economy. It is calculated by the percentage of the number of unemployed people divided by the total work force (Weiss 2014). Rate of unemployment gets reduced with the expansion of the economy. The opposite happens during the contraction of the economy or in recession. Unemployment is a social problem. It leads to wastage of human resources, bring poverty in the nation, and also generates the frustration, resentment and discontent among the citizens of a nation. If it is not checked at the proper time, it may lead to breakdown of the economy. The major types of unemployment are structural, cyclical, frictional and seasonal (Sergeevna and Enrico 2014). 

The level of unemployment in Australia started to increase since the World War. Although it has taken many efforts to lower the unemployment by creating jobs, the unemployment rate has remained around 6% for many years. In the last decade, Australia was not much hit by the global financial crisis and recession, but the unemployment rate increased (Zammit 2017). The effects of the fiscal stimulus policies and tax cuts have pushed the unemployment rate in Australia. The youth unemployment rate had increased at that time. In the last three years, from 2014 to 2016, the unemployment of Australia was more or less stable. However, a recent study showed that there has been loss of almost 6,400 jobs in the early months of 2017, with a forecast of increase to 15000 (Delalande 2017), which has become a rising concern for the government.

As per the data of the World Bank, the unemployment rate in Australia from 2014 to 2016 was averaged to 6%. It was 6.1% in 2014 and 2015, while it fell to 5.7% in 2016.

It indicates that the economy of Australia is growing. As the economy expands, there are more job creation, thus employment rises. The situation got better in 2016 than in 2014 and 2015.

There are six states and two territories in Australia, namely, New South Wales (NSW), Australian Capital Territory (ACT), South Australia (SA), Victoria (VIC), Queensland (QLD), Northern Territory (NT), Tasmania (TAS) and Western Australia (WA).

Unemployment Rates by Region in Australia from 2014 to 2016

All the data are seasonally adjusted, except for the Australian Capital Territory and the Northern Territory, which are trend data. From the above figure, it can be seen that, from 2014 to 2016, the level of unemployment was comparatively lower in Australian Capital Territory, i.e. ACT and in Northern Territory i.e. NT. It was relatively higher in South Australia i.e. SA and Tasmania i.e. TAS (ABS Labor Force Survey 2017). From this data, it can be inferred that ACT and NT regions are relatively developed economically than the other regions.

Table 1: Unemployment rate by regions, 2014-2015

The above charts and Table 1 show the unemployment rate by regions from 2014 to 2016. In ACT, the rate of unemployment was quite lower and it fell to 3.8% in 2016 from 4.7% in 2015. In NSW, the unemployment rate was higher in 2015, while it came down to 5.1% in 2016. All the above graphs and data show that in 2016, the unemployment rate declined except for Western Australia (WA). In WA, the trend of joblessness is rising, from 5.1% in 2014 to 6.1% in 2016 (Cassells 2017).

The reasons of unemployment can be multiple and varied. There could be natural phenomena or economic phenomena that can create unemployment in the economy. For example, a natural calamity can destroy the sources of employment in a particular region. At the same time, a technological innovation in any organization can lead to a loss of jobs in that organization. Sometimes the government comes into the labor market and intervenes in the functions (Mankiw 2014).

The three major types of unemployment are structural, cyclical and frictional. There are several other types of unemployment, such as, seasonal, natural, classical, long term, and real. Cyclical unemployment refers to the unemployment that is created by business cycle fluctuations. When there is a change in the structure of the economy, structural unemployment emerges. Frictional unemployment arises when there is a difference in the skills of the people and the qualities required in the job market. It usually occurs when the people shift jobs (Kroft et al. 2016). Along with these, there is always natural unemployment in the Australian economy due to some general cause. Seasonal and long term employment are also present in the country. Classical unemployment occurs when the government intervenes in the market by setting a minimum wage, or making the marginal cost higher than the marginal revenue. This is also known as real wage unemployment, as the market wage remains higher than the market clearing price (Christiano, Eichenbaum and Trabandt 2016).

Causes of Unemployment in Australia

In all the provinces of Australia, all the above-mentioned type of unemployment is present. The most common causes of unemployment in Australia can be as follows.

Industries are shutting down across the country, especially in South Australia. When the major industries and the support services shut down, a lot of people lose their jobs. In South Australia, there are lack of diversified industries, hence, the unemployed people do not get much opportunities of new jobs. Such industries are agriculture, manufacturing, automotive and textiles (Borio 2014).

The government spends much on infrastructure during economic growth, and spends less during contraction. This also causes temporary unemployment. Along with that, there is problem of offshoring, immigration, recession, automation and technology, and natural disasters contribute in the unemployment in the economy. Due to immigration, there are many skilled workers in the country from other countries, who supply cheaper labor. To reduce the manufacturing cost, Australia outsources many labor intensive jobs to the cheaper countries, which reduces job opportunities within Australia. The technological innovation and automation also reduces scopes for job creation leading to the rise in the level of unemployment. The tourism industry suffers from seasonal unemployment (Campbell 2016). When the flow of tourists is higher during summer and peak season, then many people are hired on a part time contractual basis. In the lean season these temporary workers remain unemployed. In all the regions of Australia, these forms of unemployment are present. However, the level of unemployment varies from region to region. As shown from the charts above, all the seven regions except for Western Australia have demonstrated a fall in unemployment level in 2016 (Hall 2017).

The economic condition of the states and territories can throw a light on the overall condition of the regions. New South Wales has the strength of population, retail trade, and dwelling starts but the construction sector is weak. Australian Capital Territory is strong in housing finance and weak in construction. Northern Territory is strong in construction but weak in population. Queensland has strength in dwelling starts but weak in construction. Tasmania’s economic growth is low. South Australia has strength in investments on equipment but its retail trade is weak. The unemployment condition is severe in Western Australia, Victoria, while Victoria’s housing finance is strong, and retail trade of Western Australia is strong (Argy and Nevile 2016). In the recent studies by the Australian Bureau of Statistics, it has been revealed that Western Australia has the highest rate of unemployment in the country (Delalende 2016). This region is mainly dependent on the mining sector. As the demand as well as production of the mining sector has gone down in the last three years, the level of employment also fell. On the other hand, NSW is economically the best performing region. Although the mining construction craze has been going down in the recent past, NSW has maintained its growth despite weak construction. In the ranks of economic growth, Victoria follows NSW; hence, the unemployment level is lowest in these two regions (refer to table 1 and charts).

The Economic Condition of Australian States and Territories

Government policies to reduce unemployment

Australia has been trying to improve its economic condition as well as the labor market condition. The government of Australia has formulated policies to increase the growth potential of the economy as well as in the creation of a suitable working environment, which would generate almost 2 million jobs in the next 10 years. The Australian government supports the private and service sector for creating job opportunities and pushes the economic growth. Hence, policies are focused on the enhancement of opportunities for the businesses, which would also enhance their competencies in the global market (Gregory and Smith 2016).  

The Australian economy faces the challenges of part time employment. The government has implemented the policy for increasing the full time or long term job opportunities. Also there has been push for the non-profit organization to increase employment in that sector. Public, private and non-profit sectors are made to follow the regulations by the government to collaborate and create jobs. Policies are introduced to lower the interest rates and taxes to boost the total demand of the economy. To reduce the structural unemployment, which is one of the major types of unemployment in the country, special emphasis was put on education and formal training. Hence, there have been reforms in the education sector of Australia. To reduce the regional unemployment, the government of all regions implemented polices, which focused on the specific problems of that region. To help in the growth of the tourism industry and improving the condition of seasonal employment, the government has taken the venture of Tourism 2020, which aims to draw more global travelers in the next few years. The government also reduced the minimum wage so that real wage unemployment falls and made policies to make the labor market more flexible. The effects of the policies are visible as the unemployment rate has fallen for the economy as well as for all the regions except for Western Australia (Katz 2014).

Conclusion

Unemployment rate generally follows the economic cycles. When the economy is in the expansion cycle, unemployment falls, and when it is in the contraction cycle, the level of unemployment is high. Australia has been experiencing a positive growth for last two decades. Hence, there has a been a moderate and constant unemployment in the Australian economy, lying around 6%. The unemployment rate and other indicators of the labor market are affected by the demographic composition of a region. The unemployment rate in Australia has largely followed the business or economic cycles. When there was mining roar in the economy, unemployment fell to 2.7% in Western Australia and 4.2% nationwide. After the financial crisis, the level of unemployment has increased in all the states and territories of Australia. In comparison to all the regions, the rate of unemployment has increased most sharply in Western Australia, while it lowered maximum in NSW. As the mining boom was going down, there have been government interventions also to lower the unemployment rate. Hence, it can be concluded that government policies and economic growth have helped to lower the unemployment level of the country in 2016 compared to the previous years.

References

ABS Labor Force Survey, 2017. 6202.0 – Labour Force, Australia, Apr 2017. [online] Abs.gov.au. Available at: https://www.abs.gov.au/ausstats/[email protected]/mf/6202.0 [Accessed 9 Jun. 2017].

Argy, V.E. and Nevile, J. eds., 2016. Inflation and Unemployment: Theory, Experience and Policy Making. Routledge.

Borio, C., 2014. The financial cycle and macroeconomics: What have we learnt?. Journal of Banking & Finance, 45, pp.182-198.

Campbell, A., 2016. Employment services: Tackling the issue of unemployment. Parity, 29(10), p.52.

Cassells, R., 2017. FactCheck: does Western Australia have the highest unemployment in the country?. [online] The Conversation. Available at: https://theconversation.com/factcheck-does-western-australia-have-the-highest-unemployment-in-the-country-74064 [Accessed 9 Jun. 2017].

Christiano, L.J., Eichenbaum, M.S. and Trabandt, M., 2016. Unemployment and business cycles. Econometrica, 84(4), pp.1523-1569.

Delalande, J., 2017. WA notches highest unemployment rate in the country. [online] WA Today. Available at: https://www.watoday.com.au/wa-news/western-australia-records-highest-unemployment-rate-in-the-country-20161117-gsre6x.html [Accessed 9 Jun. 2017].

Gregory, R.G. and Smith, R.E., 2016. 15 Unemployment, Inflation and Job Creation Policies in Australia. Inflation and Unemployment: Theory, Experience and Policy Making, p.325.

Hall, R.E., 2017. High discounts and high unemployment. The American Economic Review, 107(2), pp.305-330.

Katz, L., 2014. Long-term unemployment in the Great Recession. Members-only Library.

Kroft, K., Lange, F., Notowidigdo, M.J. and Katz, L.F., 2016. Long-term unemployment and the great recession: the role of composition, duration dependence, and nonparticipation. Journal of Labor Economics, 34(S1), pp.S7-S54.

Mankiw, N.G., 2014. Principles of macroeconomics. Cengage Learning.

Sergeevna, V.E. and Enrico, M., 2014. Youth unemployment in Italy and Russia: Aggregate trends and the role of individual determinants.

Weiss, A., 2014. Efficiency wages: Models of unemployment, layoffs, and wage dispersion. Princeton University Press.

World Bank, 2017. Unemployment, total (% of total labor force) (national estimate) | Data. [online] Data.worldbank.org. Available at: https://data.worldbank.org/indicator/SL.UEM.TOTL.NE.ZS [Accessed 9 Jun. 2017].

Zammit, A., 2017. Long-term unemployment in Australia.

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