Unemployment and the Movement Away From Full-Time Work (HSC SSCE Economics): Revision Notes

Unemployment and the Movement Away From Full-Time Work

What is unemployment?

Unemployment occurs when people want to work but cannot find a job. This means that labour resources in the economy are not being used effectively. The concept of unemployment is central to understanding labour market performance.

To be officially classified as unemployed in Australia, a person must meet specific criteria:

• Be over the age of 15
• Be without a job or have been let go without pay
• Be actively seeking full-time or part-time work

Calculating the unemployment rate

The Australian Bureau of Statistics (ABS) defines the unemployment rate as the number of unemployed persons expressed as a percentage of the total labour force.

The formula is:

$\text{Unemployment rate (\%)} = \frac{\text{Number of persons unemployed}}{\text{Total labour force}} \times 100$

Types of unemployment

Different types of unemployment exist in the economy, each with distinct causes. Some are related to the business cycle, others result from structural changes in the economy, and some have separate causes altogether.

Cyclical unemployment

Cyclical unemployment occurs during economic downturns. It arises because the demand for labour is a derived demand - businesses need workers to produce goods and services.

When the business cycle enters a downturn:

• Demand for goods and services falls
• Firms reduce production levels
• Workers are laid off to maintain profit levels
• Unemployment increases

Structural unemployment

Structural unemployment results from a mismatch between the skills workers possess and the skills employers need. This type of unemployment often increases when:

• The economy restructures from old industries to emerging ones
• New technology is introduced
• Traditional industries decline

Workers laid off from declining industries may find their skills are not suitable for new industries. Even when jobs are available and workers want to work, the skills mismatch prevents employment.

Long-term unemployment

Long-term unemployment applies to individuals who have been without work for 12 months or more. This type of unemployment is particularly problematic because:

• Workers lose job-related skills over extended periods
• Employers become reluctant to hire people with long gaps in employment
• Initial cyclical unemployment can become long-term if economic recovery is slow

Seasonal unemployment

Seasonal unemployment occurs due to regular yearly patterns in certain industries, independent of the business cycle. Examples include:

• Tourist-related employment
• Holiday season jobs (such as Christmas retail positions)
• The December-March period when school leavers enter the labour force

This type of unemployment is predictable and typically temporary.

Frictional unemployment

Frictional unemployment occurs naturally as people move between jobs. It takes time to:

• Search for new employment opportunities
• Attend job interviews
• Complete administrative requirements

Hard-core unemployment

Hard-core unemployment refers to individuals who face personal barriers to employment, such as:

• Mental illness
• Physical disabilities
• Drug addiction

These individuals may be considered unsuitable for work due to these personal circumstances.

Hidden unemployment

Hidden unemployment includes individuals not counted in official unemployment statistics because they have:

• Stopped actively seeking work after becoming discouraged
• Returned to education or training

This type of unemployment typically rises during prolonged economic downturns. When job prospects are poor, some people become discouraged and stop looking for work. Because they are no longer actively seeking employment, they are not officially unemployed.

Underemployment

Underemployment describes workers with part-time or casual jobs who want to work more hours per week. While technically employed, these workers represent underutilised labour resources.

Key features of underemployment:

• Workers are willing and able to work additional hours
• Labour market conditions prevent them from obtaining more work
• Estimates have risen significantly in recent decades
• Linked to the growth of part-time and casual employment

Underemployment is discussed further in the section on movement away from full-time work.

Recent unemployment trends in Australia

Unemployment has been a major economic policy challenge in Australia for four decades.

Historical patterns:

1960s-1970s: Australia experienced very low unemployment rates in the 1960s and early 1970s.

1980s-1990s: An upward trend emerged between the 1970s and 1990s. Unemployment averaged 8.6% in the 1990s, peaking at 10.7% in 1992-93 - the highest level since the Great Depression.

Structural factors also contributed to high unemployment in the early 1990s:

• Microeconomic reform changed business structures
• New technologies altered production techniques
• Workers from declining industries lacked skills for emerging industries

1993-2008: A gradual downward trend saw unemployment fall to 4% by 2008 - the lowest level since 1974.

2008-2009: The global financial crisis triggered a worldwide recession. However, Australia's unemployment increase was much milder than in most advanced economies, rising by almost 2% before quickly recovering.

2010-present: Unemployment has remained mostly between 5% and 6%. Australia's rate has been around the OECD average (5.3% in 2019) but above rates in:

• United States (3.6%)
• United Kingdom (3.8%)
• New Zealand (3.9%)

Future outlook: Budget forecasts predict unemployment will remain around 5% in 2019-20 and 2020-21.

Unemployment and geography

Labour market conditions vary significantly across Australia's regions. Understanding these variations helps policymakers identify structural adjustments in the economy.

State and territory variations:

States experiencing high economic growth (such as NSW with significant infrastructure investment) record lower unemployment than the national average. States with slower growth (such as South Australia affected by manufacturing job losses) have higher unemployment rates.

Regional differences within states:

Regional areas typically experience higher unemployment than metropolitan areas.

These geographic patterns reflect:

• Different industry structures across regions
• Varying levels of economic activity
• Access to education and training
• Infrastructure differences

The movement away from full-time work

The Australian labour market has undergone substantial change in recent decades. The most significant trend is the shift away from full-time work toward more flexible arrangements.

This shift includes:

• Part-time employment
• Casual jobs
• Outsourcing
• Individual contracts
• Sub-contracting

Part-time employment

Definitions:

Part-time employed: Workers regularly working less than 35 hours per week (ABS definition).

Casual employment: Workers with occasional working hours that do not follow any set pattern. Casual employees are the most insecure because they lack certainty about future work.

Recent trends:

The proportion of part-time workers has grown dramatically over recent decades. Australia has also experienced a large increase in casual employment - a trend known as the casualisation of work (the growth of casual employment and relative decline of full-time permanent jobs as a proportion of the total workforce).

Reasons for the shift:

Employee preferences:

• Some workers prefer part-time work to balance family commitments
• Women are more likely to work part-time (46% of employed women versus 19% of employed men)
• This partly reflects that women often carry greater child-raising responsibilities
• Technology (particularly information and communications) enables flexible work arrangements, including working from home

Employer preferences:

• Greater staffing flexibility - can increase hours during busy periods without overtime costs
• Avoid costs of hiring additional full-time staff
• May reduce obligations to workers, including:
  • Holiday leave entitlements
  • Long service leave
  • Sick pay entitlements
  • Redundancy pay

Changing employment structures

Beyond part-time work, there has been a shift toward contractors, outsourcing, and sub-contracting arrangements. These changes aim to give businesses greater flexibility to adjust staffing levels as conditions change.

Contractors:

Contractors are paid to provide specific services rather than being employed directly. Key features:

• Governed by commercial law rather than employment law
• Theoretically have greater control over how they provide services
• Common in industries like trucking, where drivers own their trucks and are paid per kilometre or assignment

Outsourcing (sub-contracting or contracting out):

Outsourcing occurs when organisations pay other businesses to perform functions not considered core to their operations.

Advantages of outsourcing:

• Allows organisations to focus on areas of specialisation
• Specialised companies perform other functions more efficiently

Disadvantages:

• Creates shorter-term employment arrangements
• Workers employed by different organisations than those receiving services
• Workers typically on short-term contracts

Implications for employers and employees:

These changing structures allow firms to have staff benefits without traditional employment obligations:

• No requirement to pay award wages
• No workers' compensation
• No superannuation contributions
• No long-service leave
• No redundancy entitlements

Advantages and disadvantages of casualisation

Advantages:

• For employers: Flexibility to adjust staff levels as business demands change
• For employers: May avoid non-wage costs (penalty rates, redundancy entitlements)
• For employees: Flexibility to manage family or other commitments

Disadvantages:

• Less job security for workers
• Difficult for employees to plan financially, obtain home loans without secure income
• Reduced staff loyalty
• Less development of workforce skills