Full Employment

Measurement

The extent to which unemployment is evident in the Australian economy is expressed in terms of the unemployment rate. This can be defined as the percentage of people who are in the labour force and are actively seeking work, but who have not been able to find a position.

To examine the unemployment rate, the population can be broken down in the following manner:

The non-labour force is made up of all of those people who are over the age of 15, but who are not either working or seeking work. For example, this group includes students, retired people, some disabled people, volunteer workers and those who choose not to work such as parents who stay home to raise children.

The labour force, on the other hand, is all people who are aged over 15 who are either working or seeking work. We are very interested in the percentage of people who are willing to be in the labour force, and so we assess this by calculating the participation rate. This is calculated as follows:

In Australia in recent years, this figure has averaged around 63%.

We can use the same diagram to calculate the unemployment rate. This time, we are interested in the percentage of people who are in the labour force, but who do not have a job. As such, we calculate the unemployment rate as follows:

Completing the calculation is the easy part – far more challenging is establishing which category people should be placed into. To be classified as unemployed, a person must:

• Not have worked for money at all during the reference week
• Be actively seeking work
• Not have worked for one hour on a family farm during the reference week
• Be able to begin work during the reference week (the week in which the survey is completed).

To find these figures, the ABS conducts regular surveys of Australian households. Contact is made with 0.7% of all households in Australia to determine the number of people who are in the labour force, and the number of those who are unemployed.

It is unlikely that any federal government will publish a goal for the unemployment rate, as to do so would invite criticism should the rate not be achieved. Politically, this may lower the chances of re-election. During the budget speech in May 2007, Peter Costello did say that the outlook for the unemployment rate is that it would “remain around 30 year lows”. (This is a statement that he included in this speech each year from 2004 until the Rudd government was elected in 2007.) It is generally accepted by economists that the NAIRU in Australia is between 4% and 6%. However, as other countries (notably Japan) have been able to maintain lower rates than this without excessive rates of inflation, it may be that further restructuring of the Australian labour market is needed so that even lower rates of unemployment can be achieved in the future.

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