ECON1020 Lecture Notes - Lecture 4: Structural Unemployment, Full Employment, Negative Relationship
Lecture 4 - Unemployment and Inflation
Thursday, 15 March 2018
2:00 PM
<<ECON1020 Lecture 4.pdf>>
• Microeconomics was invented in the 30's after the great depression due to major
unemployment
• Inflation was also happening around the time, Germany had hyperinflation in the 1920's
Unemployment
• The labour force survey
o Labour force is the sum of employed and unemployed workers in an economy
o Discouraged workers are people who are available and capable of working but believe
that there is no job available for them
o The ABS labour force survey is a monthly sample of 0.33% of the population aged over
15
o Unemployment rate = # of unemployed / Labour force * 100
o Labour force participation rate = labour force / working age population * 100
• Problems with measuring unemployment
o The number of discouraged workers increases during a recession
o Under-employed workers are people who work part-time but would like to work more
hours and people who are over qualified for their jobs
o People who claim to be unemployed but are not
• Trends in labour force participation
o The higher the participation rate, the more labour is available and the higher potential
GDP
o (1978-2016), Male participation down from 79% to 71%, female participation up from
44% to 59%
• Job creation and job destruction
o The Australian economy creates and destroys hundreds of thousands of jobs every year
• New firms begin and existing firms expand
• Some firms contract, others go out of business
o Job creation and destruction is a normal part of an economy and is due to changes in:
• Consumer taste, technological change, entrepreneurial success or failure
• Cost of unemployment to the economy
o Loss of GDP
o Loss or deterioration of human capital
o Retraining costs
o Costs to the government
• Unemployment benefit payments are a drain on the federal budget
• The opportunity cost of funds directed towards unemployment benefits
• Loss of tax revenue, e.g. personal income tax, company tax, GST and excise taxes
• Cost of unemployment to the individual
o Loss of income
o Loss of skills
o Retraining costs
o Loss of self-esteem
o Social costs, e.g. homelessness, family break-ups, crime, mental illness
• Types of unemployment
o Cyclical unemployment
• Caused by business cycle contraction
• Falling sales lead to cut-backs in production and cause the sacking of workers
• Unemployment rate normally rises even during recovery
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
<: microeconomics was invented in the 30"s after the great depression due to major unemployment. Inflation was also happening around the time, germany had hyperinflation in the 1920"s. Gdp (1978-2016), male participation down from 79% to 71%, female participation up from. Job creation and job destruction: the australian economy creates and destroys hundreds of thousands of jobs every year, new firms begin and existing firms expand. Some firms contract, others go out of business. Falling sales lead to cut-backs in production and cause the sacking of workers: frictional unemployment. Inflation: price level is a measure of the average price of goods and services in the economy. Inflation is the sustained increase in the general level of prices in the economy. Income redistribution: holding wealth in paper money, the costs to firms of changing prices. It is associated with political instability and accompanied by severe recession and economic and political turmoil: demand pull inflation.
