Cyclical Unemployment and Structural Unemployment

Question: Discuss about the Cyclical Unemployment and Structural Unemployment. Answer: Introduction: Countries focusing on economic development at all levels consider unemployment as a pain-staking affair that makes the whole systems process vulnerable. It brings poverty along with desolation from the conventional way of life. It is described as an observable fact that takes place when an individual who is vigorously looking for a job is not able to find any. The unemployments rate is one of the most common procedures in measuring unemployment. The rate of unemployment is defined as the measure of the occurrence of unemployment. It is measured as a percentage, which is obtained by dividing the number of unemployed by all individuals who are presently in the work force. A high rate of unemployment is mostly common during the periods of recession. The circumstances that are surrounded around the current economic performance of Australia are quite diverse as compared to the previous circumstance (Hobson 2013). This essay offers a concise impression about the diverse types of unemployment in numerous states of Australia. It shows that the economy of Australia has experienced huge changes in the characteristics of what it produces and how it produces. These are mostly caused by the changes in technology. The greatest damage to an individual is mostly done by unemployment that continues for months or years. It shows provides an overview about the government policy in Australia. Australian states like NSW, Tasmania, SA and WA are in the process of applying diversified strategies related to unemployment. The economy is faced with various sorts of unemployment where the extreme sort of unemployment is cyclical unemployment. It takes place when there is not satisfactory aggregate demand in the economy to provide jobs for each person who desires to work. Most of the economists describe cyclical unemployment as a situation that takes place due to inadequate demand for labor in a business (Quercia, Pennington-Cross and Tian 2014). The downturn in the business cycle mostly leads to this type of unemployment. It generally occurs when the economy contracts, as calculated by Gross Domestic Product. It is termed as cyclical because, the unemployed individuals mostly are rehired when the economy re-enters the expansion phase of the business cycle. Cyclical unemployment is one of the three major classes of unemployment as acknowledged by economists. Other types on unemployment includes structural and frictional. A feature of overall unemployment that associates to the cyclical trends in expansio n and production that takes place within the business cycle. Cyclical unemployment tends to be low when business cycles hit the highest point. This is mostly because total economic productivity is being maximized. With the fall in economic output, the business cycle lowers and cyclical unemployment increases. The Great Depression is one of the biggest example of cyclical unemployment (Diamond 2013). Structural unemployment mostly deals with the structural issues within an economy as well as inefficiencies in the labor market. It also arises when there is a disparity between the skills of the unemployed individuals as well as skills that required for the jobs that are available. The most imperative reason that leads to structural unemployment is globalization. If the local area of a country is affected by structural unemployment, it is termed as regional unemployment. It is a longer-lasting form of unemployment, which takes place due to elementary changes in the economy. The lack of required job skills of the workers mostly leads to structural unemployment and it takes place due to several forces other than the business cycle. In other words, structural unemployment can last for decades and may require essential change to equalize the situation. Another most common type of unemployment is frictional unemployment that is also referred to as search unemployment. It takes place when employees lose their present job and in the procedure of searching another one. This type on unemployment is mostly influenced by voluntary choice to work on the basis of the valuation of individuals. It also suggests that full-time unemployment is not possible at any point of time as few employees will always be in the procedure to change jobs (Quercia, Pennington-Cross and Tian 2014). The diagram illustrates demand deficient unemployment that mostly takes place due to lack of aggregate demand. The lack leads to fall in the level of output as well as the level of price. This mostly takes place due to inadequate demand in the economy in order to maintain a full-time employment. It might lead to greater rate of long-term unemployment. When individuals become unemployed, they either become de-skilled or de motivated. As a result, they might find it difficult to get a job in the future. Hence, a period of cyclical unemployment could diminish long-term productive capability. Cyclical unemployment is also associated with demand deficit unemployment and they are mostly used interchangeably (Thirlwall 2015). On the other hand, unemployment can also be divided into voluntary and involuntary unemployment. Involuntary unemployment indicates a circumstance in which not all able individuals who has the desire to work at the existing wage are getting work. This type of unemployment takes place due to lack of aggregate demand that is adequate to ensure full employment. It also illustrates the excess supply of labor, which the rigid rate of wage has failed to eradicate. In other words, with the existence of involuntary unemployment, it is not possible to gain the equilibrium of full employment. Voluntary unemployment describes a circumstance when individuals who are able to work but are not eager to do a job. Such individuals are not considered as the part of the labor force (Harvey 2016). The observation of unemployment is not a specific perception in countries like Australia. If an individual in Australia do not work for at least an hour in a week, they are considered as unemployed. There are three general types of circumstances, which led to labor markets in Australia. The first type is the stronger labor market circumstance; the second is the weaker labor market circumstance; and the third is the ideal labor market circumstance. However, the weaker labor market fact in Australia mostly leads to unemployment. This type of unemployment takes place when the labor supply by households is increasing comparative to the demand for labor by markets. The most common factor that leads to weaker labor markets are high rate of unemployment, decreasing job vacancies, diminished growth of employment as well as rising duration of unemployment. This indicates that the common type of unemployment in Australia is cyclical unemployment (Milner, Page and LaMontagne 2013). The above graph illustrates the rate of unemployment trend in Australia over the past 30 years. It was severely high during the early 1990s that led to high level of recession. However, the lowest rate of unemployment in the period took place just before the financial crisis. The unemployment rate in Australia is closely interrelated with economic growth, present rates of interest as well as future expectation of interest rate (Kler, Leeves and Shankar 2015). There are several issues that are related to long-term unemployment, which in turn generates social and economic problems in Australia. A sharp increase in long-term unemployment takes an increasing toll on the collective welfare of Australia. It also leads to loss of income as well as societal problems that affects individuals in a negative manner. According to reports, the long-term unemployment to collective welfare of Australia has reached $3.3 billion per year. Costs generated by unemployment are measured as dead losses as such costs do not create any profits or benefits. Long-drawn-out unemployment can also lead to increase in protectionist as well as anti-immigration propensities in society. Unemployment generally leads to financial cost to the country, as governments are forced to distribute larger amounts of unemployed benefits. The most common negative impact of long-term unemployment is skills deteriorate. In Australia, most of the production of commodities and services is manufactured through formal economy. In other words, most of the individuals in Australia work for wages. Some groups face elevated risk of being unemployed as compared to the average (Gregory and Smith 2016). Australia had experienced a detonation in real wages in current years, especially when viewed from the perspective of workers. This had mostly occurred due to decrease in the rate of inflation rather than any boom in growth of nominal wages. However, the real wage boom was considered to apparent when measured from perspective of the producers rather than the perspective of the employees. This wedge between producers and employees had been formed due to changes in the terms of trade as well as changes in policy (Morris and Wilson 2014). The boom of real wage had contributed greatly to the increasing rate of unemployment in Australia. Australia has the highest rate of part-time workers that reflects a moderately elastic labor market assisting individuals to choose the number of hours of work that best suits their individual circumstances. The increasing importance of part-time workers illustrates an imperative structural change in the Australian labor market. With federal fixing of wage, pressure of wages in one sector of Australia is probable to flow more quickly into other parts of the economy, even where demand for labor was less perceptible (Mavromaras, Sloane and Wei 2015). Australia mostly operates an active immigration program that comprises of three key components. The first component deals with skilled migrants who are selected for their probable rapid incorporation into the labor market of Australia. Migrants to Australia comprise individuals from non-English speaking backgrounds. According to ABS reports, the rate of unemployment decreased in New South Wales (NSW) from 0.1 percent to 5.9 percent as well as in Queensland (Qld) from 0.1 percent to 6.3 percent. However, in Victoria the rate of unemployment increased up 0.1 percent to 6.2 percent. The rate of unemployment has also been steady in Western Australia (WA) at 6.1 percent. The Northern Territory witnessed its unemployment rate being increased to 4.9 percent from 0.2 percent. Due to financial crisis, most of the states of Australia had rates of unemployment from 5.2 percent to 5.5 percent (Sharma, Oczkowski and Hicks 2016). The trend of unemployment did not change in Tasmania, as it was 7.3 percent in the year 2015, which is similar to the previous year. It also remained higher as compared to the national rate of 5.1 percent. As compared to other states and territories, Tasmania recorded the highest rate of unemployment at 7.3 percent whereas; Australia Capital Territory (ACT) recorded the lowest rate of unemployment that is equal to 3.4 percent. The two largest states of Australia have the healthiest labor markets. The total unemployment and under-employment in NSW records a total of 15.2 percent. The graph shows the comparison of unemployment and under-employment in different states of Australia (Carvalho 2015). According to the ABS, the rate of unemployment had remained steady at 5.7 percent with an approximated addition of 17,900 jobs. It has also been reported that there were almost 153,800 full-time workers in Tasmania in the year 2014, however; at present there are only 143,800 full-time workers. This provides a difference of 10,000. According to most of the economists, Australia requires to create almost 20,000 jobs in order to stable unemployment rate. However, the overall increase in jobs was in part-time work rather than full-time work. The rate of unemployed is increasing as the unemployed are rousingly giving up searching for full-time work. As per the recent data, there were almost 232,200 individuals were employed in Tasmania in the year 2013. However, the number decreased in the year 2014 to 232,000 that indicated that only 200 people employed. The rate of unemployment increased in Victoria in the year 2016 up to 5.8 percent whereas; it increased to 5.7 percent in Western Australia (Nymoen and Sparrman 2015). In order to maintain a socio-economic condition, every country has a developed policy to reduce its rate of unemployment as well as to increase employment. The commitments of Australia on broad macro and microeconomic strategies will help to stabilize the economy. This will in turn lead to creation of private sector jobs. The settings of government policy lead to the creation of substantial fiscal position as well as reduced business costs (Carraro Siniscalco 2013). The government of Australia commits to achieve budget surplus over the course of the economic cycle. They are also likely to make a stronger investment to increase productivity and labor force participation. The macroeconomic policy commitments also require strengthening of balance sheet of the government to improve net financial worth over the course of time (Lloyd and Ramsay 2015). Under the macroeconomic policy framework of the government, automatic fiscal stabilizers as the major demand management tool that support the monetary policy acts. Different states of Australia apply different policies that are related to unemployment. In order to enhance employment, states such as ACT, Western Australia and NSW are following the policy of low minimum wages. They follow this policy in order to make it easier for the employers to hire more workers that will reduce the rate of unemployment. On the other hand, Victoria, Qld, Tasmania and South Australia situates the minimum wage lower than that of the present minimum wage to reduce the rate of unemployment (Gal 2015). According to Weiss (2014), the Commonwealth and State government of Australia had undertaken fiscal consolidation at a measured pace that would help to reinstate the structural reliability of the government revenues over the medium term. The Australian government also provides unemployment benefits to the individuals who are unemployed for more than 12 months in order to encourage them to obtain employment. The policy of the government also includes commitments that will help to increase competitiveness as well as support investment. The government believes that private investment and private enterprise are regarded as the major drivers of economic growth as well as nationwide propensity. The government is also implanting new industry innovation and competitiveness agenda that will provide the employees with the skills that they require adapting to the changing economic circumstances and seizing new prospects. Government is also dedicated to cut the costs from trade on redundant red and green tape. This in turn helps trade to get free to provide jobs and accomplish required social and environmental objectives (Makin and Pearce 2016). The government had also introduced an expanded Work for the Dole program to eradicate the rate of youth unemployment. The government had also decided to provide $A 2,500 job commitment bonus to those individuals who have been unemployed for more than a year. The government had also introduced generous Trade Support Loan in order to make sure that the beginners of Australia receive a support that they require to get a job. Unemployment is larger than necessary due to the fact that the tighter monetary policy in Australia discouraged some investment that in turn leads to accumulation of capital as well as substantial output growth. One of the best policy that helped to reduce the rate of unemployment was quicker movements in fiscal policy in order to dampen the economic shocks. Monetary policy on the other hand, was used to accomplish an inflation target in the broad range of 2-6 percent (Considine, O'Sullivan and Nguyen 2014). It can be concluded that the short-term effects related to unemployment was deregulation that lowered wages in the economy that led to increase in employment. However, there has been very little effect on wages and employment in the center. It can be concluded that in order to reduce unemployment rate it is imperative to involve more active labor market programs along with augmented participation in education and training. This will in turn contribute to a more flexible and adaptable labor market in Australia. This will also help Australia to have a lower rate of unemployment as compared to the other OECD countries. The boom of real wage had contributed greatly to the increasing rate of unemployment in Australia. Australia has the highest rate of part-time workers that reflects a comparatively flexible labor market facilitating individuals to choose the number of hours of work that best suits their individual situation. The enhancing performance of the labor market illustrates a payo ff from the broad range of macroeconomic and microeconomic reforms. It can also be concluded that when unemployment is combined with high rate of productivity, it helps to enhance economic and social outcomes that will in turn help individuals to make a correct decision regarding jobs. It can also be concluded that there are several factors that influence the rate of unemployment. These mostly include prevailing economic surrounding as well as the institutional and policy structure for the labor market. Longer-term trends in the participation rates of Australia are driven hugely by structural factors rather than by short-term fluctuation in the labor market. The incentive that individuals on wellbeing and other benefits have to enter employment is also an imperative part of structural factors. it can also be concluded that a sharp increase in long-term unemployment takes an increasing toll on the collective welfare of Australia. References Carraro, C., Siniscalco, D. (Eds.). (2013).Environmental fiscal reform and unemployment(Vol. 7). 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