Major causes of unemployment, recent unemployment performance, policy options available to the government to achieve a sustained reduction in the level of unemployment in Australian economy

"Outline the major causes of unemployment and social consequences of unemployment for the Australian economy".

There are a number of causes of unemployment, which ultimately result in both positive and negative consequences for Australia’s economy. These causes are outlined as follows.

Economic growth is possibly the most influential factor causing unemployment. The demand for labour is a derived demand, meaning that it is determined by the level of demand for goods and services in an economy. This means that if an economy is experiencing low levels of economic growth, aggregate demand will fall, thus decreasing the demand for labour, which will result in an increase in unemployment.

resulted in a strong decline in unemployment (stimulus). Australia’s unemployment rate is currently at 5.1%, its lowest since the 1970’s (stimulus).

Unemployment may also be caused by technological change – This can have a negative effect on unemployment as a company may replace labour with capital in order to become more efficient.

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Components of economic growth (Saari 2006)

Jobs are lost as technology is now used instead, or people don’t have the skills required for the new production methods therefore increasing unemployment. However, the labour force may undergo further education and training to acquire the new skills needed, thus reducing unemployment.

Labour productivity is a significant factor affecting the level of unemployment. Low level of productivity tends to encourage employers to use capital in reference to labour in production therefor increasing unemployment.

The cost of labour also impacts upon the unemployment rate. If the cost of labour is high, employers will replace labour with capital therefor increasing unemployment, but if it is relatively low, employers will rather choose to employ more workers, thus increasing unemployment.

One of the reasons for a rapid increase in labour costs may be the inflexibility of the labour market due to regulations for...