Question

Question 3a    In 1992 Australia’s official unemployment rate was over 10 percent. Since then, the proportion of jobs in the economy that are part-time has increased while our measured rate of unemployment is now around 5 percent .

• What are the implications of an increasing part-time work-force when comparing unemployment rates between 1992 and today?    

The article mentions NAIRU, which it defines as the “non-accelerating-inflation rate of unemployment” but the AD-AS model focuses on the natural rate. Define what is mean by the natural rate of unemployment and explain its relationship to the LRAS (long run aggregate supply curve).

Answer 1

3.

There are different implications of increasing the part time workforce in the economy. The first implication is that it will give the false indication that unemployment rate has decreased in reality. But, the truth is that it will only add volatility to the unemployment rate, because part time jobs are not permanent. The second implication is that decrease in unemployment rate will make it to be near to the natural rate of unemployment, but it will not be improving the real GDP per capital of the individuals in the economy. So, comparing 1992 with today, it can be said that unemployment rate has come down, but it is not due to the increase in quality jobs, rather it is the part time jobs that can engage people for a few hours a week and it may not be sufficient. In 1992, there will be higher % of the people opting for the unemployment benefits if any it is planned by the government, but today, less number of people will be as they are engaged with the part time jobs as well. So, today, judging the economy on the basis of unemployment rate will not be a wise idea, in comparison to the economy of 1992.

Natural rate of unemployment rate is the unemployment rate that exist at the potential level of output. It has a relationship with the LRAS, because LRAS defines the potential output level produced in the economy. If LRAS shifts to the right with increase in technology and resources, it creates more employment opportunity and natural rate of unemployment will decrease and vice versa. So, it can be said that natural rate of unemployment is linked with the LRAS.