Keynesian Economics, Labour Market of Australia - Article Example

Running Head: RELATIONSHIPS Relationships [Name of the writer] [Name of the institution] RELATIONSHIPS Labour economics hunts for to realize the functioning and dynamics of the market for labour. Labour markets function through the interaction of employees and employers. Labour economics examines at the suppliers of work services (workers), the demanders of work services (employers), and endeavors to realize the producing pattern of salaries, paid work, and income. In economics, labour (or labour) is an evaluation of the work wrapped up by human beings. It is conventionally compared with such other factors of production as land and capital. There are models which have deduced a fundamental thought called human capital (referring to the talents that staff have, not likely their real work), though there are in addition act against faking macro-economic procedure models that consider human capital is a contradiction in terms. (Deery, S, Plowman, D, Walsh, J & Brown, 78) The Reserve Bank of Australia's (RBA) glossary of terms, defines labour market as "A collective term for employment, unemployment, participation rates and wages." Additionally it may be defined as the interaction between employees and employers and how they seek to find employment, also the effects of trade unions and Industrial Tribunals and how they aim to protect and assist workers. (Sandra Jones, 153) The labour market throughout the years has shown trends or patterns in its changes, this can be seen by studying the statistics of factors of the labour market such as: Unemployment, part time work, casualization of work, outsourcing, individual contracts and sub-contracting. Unemployment is defined as a person that is not working, but is seeking for and is readily available to work. Causes of unemployment can vary from lack of education to discrimination in the workplace. Unemployment for the last 10 years has dropped at a low but steady rate to just settle at 4.9% at the current state according to Employment and Workplace Relations Media Centre. Today's unemployment level is considered comparatively low to the rate 10 years ago. Effects on the economy from a low unemployment rate can be: Higher economic growth. Generally, the more people that are employed allow consumers to spend more and thus increasing the standard of living. Governments would also benefit from a low unemployment rate as it would have to spend less from the budget to cover welfare payments to the unemployed, it would also raise more revenue from taxation and benefit the budget outcomes. One negative effect that low unemployment rate would cause is the higher rate of inflation. Also if supply runs out wages increase, lead to interest rate rise. The labour force is characterised as the number of persons age 16 and over, omitting those in the infantry, who are either engaged or dynamically looking for work. The participation rate is the number of persons in the work force split up by the dimensions of the mature individual citizen non institutional community (or by the community of working age that is not institutionalised). The non labour force encompasses those who are not looking for work, those who are institutionalised for example in jails or psychiatric wards, stay-at dwelling spouses, young children, and those assisting in the military. The unemployment level is characterised as the work force minus the number of persons actually employed. The unemployment rate is characterised as the grade of job loss split up by the work force. The employment rate is characterised as the number of persons actually engaged split up by the mature individual community (or by the community of employed age). In these statistics, self-employed persons are counted as employed. (Keenoy, T. and Kelly, D. 192) Variables like paid work grade, job loss grade, work force, and vacant vacancies are called stock variables because they assess a amount at a issue in time. They can be mismatched with flow variables which assess a amount over a length of time. Changes in the work force are due to flow variables for example natural community development, snare immigration, new entrants, and retirements from the work force. Changes in job loss count on: inflows made up of non-employed persons beginning to gaze for occupations and of engaged persons who misplace their occupations and gaze for new ones; and outflows of persons who find new paid work and of persons who halt looking for employment. When looking at the general macroeconomy, some kinds of job loss have been recognised, including: Frictional unemployment, this reflects the detail that it takes time for persons to find and resolve into new jobs. If 12 persons each take one month before they start a new job, the aggregate job loss statistics will record this as a lone jobless worker. Technological change often decreases frictional job loss, for example: the internet made job explorations lower and more comprehensive. Structural unemployment reflects a mismatch between the abilities and other attributes of the work force and those claimed by employers. If 4 employees each take six months off to re-train before they start a new job, the aggregate job loss statistics will record this as two jobless workers (Kate, 17). Technological change often raises functional job loss, for example: technological change might need employees to re-train. In Keynesian economics the demand deficient unemployment is, any grade of job loss after the natural rate is most expected due to insufficient demand in the general economy. During a recession, aggregate expenditure is deficient initating the underutilisation of inputs (including labour). Aggregate expenditure (AE) can be expanded, as asserted by Keynes, by expanding utilisation expending (C), expanding buying into expending (I), expanding government expending (G), or expanding the snare of trade items minus trades (X−M). {AE = C + I + G + (X−M)} (Keenoy, T. and Kelly, D. 186) To work part-time means that you are being employed less than 20 hours per week at a set day and time every week. The trend for the last 15 years can be seen on the graph below as a steady rise in part time employment. Part time employment affects the economy as it allows for workers to spend time away from work and more time to spend on family and personal reasons. Increase in part time work means less people are working less then 20 hours per week. A decrease in productivity would also result in less efficient firms and a decline in economic growth (Keenoy, T. and Kelly, D. 203). However it would be of benefit to some employees and businesses as it gives them more flexibility in the lifestyle. It would so benefit the economy as a whole making it more flexible and internationally competitive. Casual workers are employed on a random basis and can be called up at anytime. They do not benefit from fringe benefits such as holidays bonus, sick pay and long service leave etc. They would incur a higher wage in compensation for this. As casual jobs generally require low skill therefore most people would be able to be employed. E.g. Fast food restaurants like MacDonald's, Hungry Jacks. The increase of causal jobs suggest that more jobs are being created and more people being employed, thus resulting in economic growth. The overall effects on the economy are basically the same as part-time work. Outsourcing or otherwise known as contracting out involves businesses employing other businesses to do jobs that they do not specialize in but the other business dose. A hypothetical example can be Macdonald's employing another company to produce drinking straw because Macdonald's themselves do not want to waste time producing straws when they can focus on making burgers (Burke, 59-62). In the Australian Economy outsourcing has increased. This can benefit the economy as it would allow more efficiency for both businesses, increase in productivity and efficient allocation of resources. Sub-contracting is when a firm gets employed to complete a job and very similar effects on the economy as outsourcing. Another rising trend that is visible is the increase of individual contracts in Australia being offered to employees. Individual contracts are used to settle agreements between an employer and an individual worker for working conditions, rates of pay etc. This could also be referred to as enterprise bargaining (Burke, 74-81). This could have a dramatic effect on the economy as employers can take advantage of setting contracts that are under paid and in poor working conditions. The effect of this is that the minimum wage would be entirely eliminated as employers can just simply offer the contract to another worker. This would also mean that the gap between rich and the poor would also increase. The current Australian Workplace Relations Amendment Act. (Work Choices 2005) vastly changed the workplace in Australian society and has also caused enormous response among groups of people. These groups include Trade unions, Employer Associations and the Federal Government. The changes in brief are discussed, Establishment of the (AFPC) Australian Fair Pay Commission. This sector is to now set and adjust minimum wages and working conditions. This would replace the award system. Diminishment of penalty rates, overtime etc. Additionally the support of enterprise bargaining i.e. individual/employment contracts and less dependent on the award system. Moreover, the agreements on individual contracts would also not be necessary pass the "no-disadvantage test” and the reduction of the Australian Industrial Relations Commission (AIRC) and Trade Union powers. (Cooney, 91-97) A trade union is an association which is made up of workers that unite to represent members or the work place and increase the working conditions, wages, or any other benefits to employees. Through out the years, since the implement of the Workplace Relations Act 1996 trade union member ship has declined. The laws back then took power away from the unions and now the implement of the Amendment Act. 2005 further takes more power away from them as now the government do not set things such as minimum wage anymore, instead the AFPC dose. The role of the unions after the application of the current industrial relations is to try and protect employees from the new laws that eliminate penalty rates, minimum wages and unfair dismissal, especially when unfair dismissal laws are being eliminated in small businesses, many people would lose their jobs unfairly (Jones, 151-166). Employer Associations are a group of people that promote ideas of there members within the association by showing the government its views on things such as Industrial relations polices. The current roles of employer associations are mainly to support employers through advice, training, negotiate wages and pay rates. In terms of the current industrial relations reforms, employer associations were very supportive of the idea. An example of this is the Business Council of Australia suggesting that more reforms are needed to make the economy more efficient and competitiveness. Employer associations also aim to protect Australian industries from going over seas as well as supporting locally produced goods and services. (Derry, S. Plowman, D. and Walsh, 57) When an employer association or the unions have a dispute between an employer and employees, they usually take it to the industrial tribunals. The tribunals are like a court system that works separately from the government but the government still has the last says how far they can do in reaching a decision. The Federal Government has a big role in the current industrial relations system. They decide what laws are enforced and explain how they work to the public. As quoted from Workplace Relations Minister Kevin Andrews "We have seen 1.7 million extra jobs created in Australia, more than a 14% increase in real wages. The Government argues that employees will have more choice and flexibility and this in turn will lead to higher productivity." Labour stated that this new legislation would further disadvantage low skilled workers worse off. The Labour Party was completely against the idea and even the leader, Kim Beazley had recently said that he would reinstate penalty rates if he was elected. Therefore it can be seen by the study of recent statistics, trends can be identified in the labour market and they can impact on the Australian economy in both positive and negative ways (Workers Choices, 2005). Also the current industrial relation reforms have caused many changes in roles of Trade Unions, Employer Associations and the Federal Government. Labour is the human element in the production process. The labour market is a factor market where the demand and supply of labour interact to determine the wage rate and the allocation of labour resources in the economy (Plowman, 119-126). The demand for labour is derived from the demand for the goods and services that labour is used to produce. In a competitive labour market, the interaction of the demand and supply for labour will determine wage rates and the allocation of labour resources. However, governments intervene in the free operation of labour markets for a number of reasons like for establishing minimum wage levels, resolving industrial disputes, setting minimum conditions (health and safety) and annual leave and superannuation payments Government Policies such as industrial relations, immigration, education and training affect the size and the quality of the labour market. Size of the labour market can be taken to mean the size of the labour force (Plowman, 119-126). The Quality of the labour market refers to the general health, motivation, skills, and education and training levels possessed by those persons in the labour force. Labour Demand at a macroeconomic level is usually influenced by the total level of economic activity or aggregate demand. If economic growth is high as it has been, there will be an increased demand for labour as spending and output have risen, increasing the demand for productive inputs including labour. Additionally, the productivity of labour will influence decisions by employers to hire workers. Rising productivity levels will lead to an increased demand for labour as employers are likely to hire more productive workers to increase output at a reduced cost and the general wage rate will reflect the relative cost of labour to capital. If wage rates are lower than the cost of capital, employers will substitute labour for capital in production by hiring additional workers. At the microeconomic level the demand for labour is influenced by the nature and size of the industry. Large labour intensive industries such as textiles are likely to be big labour users as opposed to smaller more capital intensive industries such as mining. Moreover, the pattern of consumer demand influences the demand for various industries output. Eg, a decline in the demand for steel may lead to a decline in demand for steel workers. And the wage rate offered in different industries will affect demand for labour (Plowman, 153-56). More profitable industries with high prospects will be more able to attract labour by offering higher wage rates and other benefits. Moving forward it can be stated that the rate of capital/labour substitution in various industries will influence demand for labour. Primary and Secondary industries have reduced their work forces as increased mechanisation and computerisation have eliminated much of the production once done by labour. On the other hand the Supply Factors affect the size and quality of the labour market including the supply of Labour at a macroeconomic level, the size of the population and in particular the working age populations. Larger populations tend to have a larger workforce. Furthermore, the age distribution of the population influences the labour market. Countries with larger 15-65 age categories have a larger potential workforce compared to countries with either >15yr or Read More