Full Employment

The Costs and Benefits of Achieving Full Employment

The Australian government is very keen to ensure that all of those who are willing and able to work are able to find employment in the Australian economy. In fact, when the Reserve Bank of Australia Act was finalised, the goal of full employment was included as one of the three primary roles of our central bank. This is unique; most central banks today target low inflation, and there is often a trade off between inflation and employment. For the government to include this goal as a central part of the RBAs guiding legislation suggests that in this country it is believed that full employment results in significant benefits. As you continue your study of this topic, you should remember that there are also some costs associated with achieving this goal.

The Benefits of Full Employment

When people are employed, they are productive. Increasing the productive capacity of our country is vital, as there will always be more people who need access to goods and services. If our capacity does not increase, then there will be a corresponding fall in living standards. Remember that economists work to understand the way in which our productive resources – land, labour, capital and enterprise – are allocated. Two of these (labour and enterprise) rely on our ability to achieve full employment.

It is also true that when people are employed they are more likely to achieve a sense of intrinsic personal satisfaction. There is something inherently satisfying about knowing that you are making a contribution. Without this, some people feel “lost”. In order to make a statement that can be heard, some of these people resort to crime. On the other hand, there are also those who feel that they are forced into a life of crime just to gain access to the food and money that they need to survive. Working towards full employment helps to ensure that the crime rate remains relatively low. Employed people are less likely to commit petty theft or acts of vandalism.

You should also keep in mind that when the unemployment rate increases the government must find ways to support these people. Transfer payments (in the form of unemployment benefits) consume a significant proportion of the federal budget each year. If fewer people are unemployed, then the government can collect more money in income tax (increasing the revenue base) and pay less money in welfare. In the long term this will help us to establish the necessary infrastructure that our country needs, assist other countries with foreign aid, provide better health and education facilities, and perhaps even save money towards an even higher standard of living in the future.

The Costs of Full Employment

To achieve full employment the economy must work towards a situation where there is significant (and increasing) economic activity. The benefits of this activity have been discussed above, but there is no doubt that there are costs associated with this process as well

When more people are employed the obvious consequence is that there must be more workplaces. At a very simple level, this means that the workplaces must be built, and that will require us to use resources. As more and more people are employed the pressure on our natural resources will increase, and over time we might find that certain things begin to run out. Further damage to the environment can also be expected as people travel to and from work. As we approach full employment more people drive cars, and this will generate pollution in the form of exhaust. When people become frustrated at the congestion on our roads, they might shift to public transport. This could result in overcrowding on trains, trams and buses. Remember that the reason to pursue full employment is to increase living standards; each of these consequences seems to make our lives worse.

Ironically as we approach full employment we might find that few productive workers remain available to be hired. This situation is known as a skills shortage, and it is something with which the Australian economy has grappled for some time. During the boom in demand for commodities, mining companies were forced to offer very high wages to attract people away from other jobs. While mining companies could afford this approach, schools could not. Full employment can result in a re-allocation of the labour resource, and this does not always mean an increase in living standards.

Finally, as suggested above low unemployment can mean that there is pressure on productive capacity. This can result in inflation, and as prices rise there is no doubt that living standards will fall. In addition, if low unemployment leads to an increase in demand for imports, we might find that our currency depreciates. This can make it more difficult to repay foreign debt, and the cost of imported goods and services will increase.

Current Page: Costs and Benefits of Full Employment