The Australian Economy: the labour market

There is a market for people’s labour, just as there is a market for any other good or service. Producers need workers to produce goods: this is the demand for labour. And workers have the ability to offer labour to producers: this is the supply of labour. The labour market refers to the interaction between the demand and supply of labour. It is the labour market that determines how many jobs there will be, where these jobs will be and the pay levels in these different jobs.

The worker’s wage (pay) is the price of labour. As with prices in any market, wages go up when there is high demand and low supply of labour in the labour market. So, in order to receive a relatively high wage in the labour market, a worker needs to possess competencies, skills, qualifications and experience that are in high demand but low supply.

Within the labour market of the economy, there are distinct labour-market segments. It is common, for instance, to have a ‘flat’ overall labour market with high levels of unemployment (where the supply of labour is greater than the demand for it) but particular industries or occupations that cannot satisfy their requirements for labour. Labour markets also differ between geographic regions: rural regions commonly experience lower demand for labour than urban areas.

Many other factors can also affect particular labour markets. That is why there are widely differing levels of employment and pay in different industries, occupations and regions.

On the demand side, these factors include the following:

• the level of productive activity requiring certain types of labour
• whether new technology is being used to replace labour
• whether new technology requires new forms of labour.

On the supply side, the following factors affect labour markets:

• the size of the working-age population (workforce)
• the strength of worker or union bargaining power and the presence of industrial action to support it
• the competencies, skills, qualifications and experience needed to perform the job
• the conditions of work (e.g. risk, unpleasantness or location)
• the unique talents needed in some industries (e.g. the talents of performers in the rock music industry and athletes in sports industries).

Labour-market trends

There have been significant changes in Australian society and business in the last 30 years. Many of the changes in the business world have been aimed at making producers more efficient and competitive. They have had an impact on the number of jobs and the types of jobs available.

Changes in the business world

Technological change

In 1976, the first microprocessor set in motion an era of rapid technological change: an era dominated by computer technology. The rate of technological change is rapidly increasing, and workplaces need to be able to integrate technology successfully to ensure their continued success.

 Economic change

Since the 1980s there have been a number of structural changes in the Australian economy. Many of these changes have been aimed at making Australian business more internationally competitive. The Commonwealth government has actively introduced the following far-reaching reforms:

• deregulation of the financial system (e.g. foreign-owned banks were permitted to conduct business in Australia)
• reductions in tariff protection for Australian producers, particularly manufacturers (a tariff is a tax on imports that make them more expensive)
• microeconomic reform in the transport and communications industries
• restructuring of industrial awards (agreements which set workers’ pay and conditions on an industry-wide basis).

Changes in training

Changes in training have occurred across all industries, but especially in the trades. These changes have been aimed at breaking down strict lines of demarcation between different trade occupations, promoting greater multi-skilling in the workforce.

 Enterprise bargaining

Since 1991, there has been movement away from a centralised industrial relations system to a system of enterprise bargaining. Workers’ conditions and rates of pay are now more commonly determined at individual workplaces or firms (enterprises) rather than across whole industries. The new process is broadly supported by all the parties involved in industrial relations.

 Decline in trade union membership

The trade union movement exercised substantial influence in the setting of wages in the 1980s and the first half of the 1990s. However, during the same period, the proportion of employees who were trade union members fell, as shown in the graph below.

Globalisation

Every day Australian businesses trade with businesses overseas. Australia Is now part of the global economy. There has been a huge growth in the importance of the South-East Asian and East Asian regions to the Australian economy; the boom economies of the so-called ‘Asian tigers’ are now seen as key targets for Australian businesses.

Overall labour-market trends

 Unemployment

In recent decades, the demand for labour has been insufficient to employ the Australian workforce in total. In the last 30 years, high and persistent levels of unemployment have been common in the Australian workforce. In the last 10 years Australia’s unemployment rate has slowly declined from 9% in 1995 to 5% in 2005, as shown in the graph below.

 Women

The greater participation of married women in the workforce has a large effect on the supply of labour. In the last 30 years the proportion of women in the workforce has increased rapidly. From a base of 35 per cent in 1970, the workforce participation rate of married women has now reached over 55 per cent.

In comparison, the participation rate among unmarried women is only slightly higher than it was in 1970. The participation rate for men during the same period has fallen from 83 per cent to 73 per cent.

 Young people participating in education

There has been a significant increase in young people’s participation in education. The proportion of young people staying at secondary school in Australia to Year 12 has increased from 34.8% in 1981 to 73.4% in 2001, and continues to increase. The number of young people in higher education (post-secondary education) has increased by a similar proportion. As would be expected, with this trend has come a decline in full-time workforce participation by young people.

 Part-time work

Part-time and casual work have become a more important part of the labour market. Around 1 job in 4 is part-time, compared with 1 in 10 in the 1960s. Part-time employment increased by 30 per cent between 1990 and 2001, and continues to grow.

Because part-time work can be compatible with undertaking a course of study, there has been a marked increase in part-time participation in the workforce by young people. Today, 65 per cent of full-time students are in the part-time workforce.

 Educational level of the workforce

The proportion of the workforce with post-school qualifications has increased over the last two decades from 37 per cent in 1980 to well over 50 per cent today. Work-based training has also been increasing during the same period. Australia has a workforce that is both more qualified and more skilled than it was in 1980. The trend can be expected to continue.

 Working hours

Another interesting trend in the labour market during the 1980’s and 1990’s was the increase in the proportion of full-time workers, particularly males, who have been working long hours (more than 49 hours a week). However, the 00’s have seen a dramatic shift, with more men limiting their working hours to give more time to family and leisure commitments. Between 1982 and August 2000, the number of men working 50 or more hours a week almost doubled from 752,000 to 1,425,000. But in the four years to August 2004, their numbers fell by 61,000, despite strong growth in the number of men with full-time jobs

The Australian Economy: role of business

In Australia there are many types of businesses: small, medium and large. In Australia, large businesses account for approximately 3 per cent of all business enterprises. The Australian Bureau of Statistics refers to large businesses as ‘those employing 200 or more people’. More than 80 per cent of all people currently in work are employed in large businesses. The largest employer being Woolworths Ltd with 94 408 employees.

Businesses do not operate in isolation to the economy and economic changes can have a major impact on the business environment. The current state of the economy can have a major impact on the business environment. Economic conditions impacting on business can be measured by indicators such as:

• the inflation rate as indicated by the Consumer Price Index (CPI)
• the level of unemployment
• consumer confidence and consumer spending
• interest rates and the level of borrowings
• wage rates and awards
• business investment and business confidence
• foreign exchange rates and the value of the Australian dollar

Fluctuations in these indicators can have a major impact on business. The global economic crisis of 2008-09 had a major impact on business confidence. Many businesses had to lay of staff or scale back operations because of uncertain economic conditions.

Contribution of business to the economy

Large businesses make a significant contribution to the Australian economy. Because of their size, large businesses are efficient producers of goods and services. In fact, according to recent statistics, large businesses contribute 56 percent of total revenues in Australia. Large businesses  also play the following important roles:

Provision of employment

Large business requires significant numbers of employees, and employ around 33% of the Australian workforce. Australia’s largest employers (Woolworths and Coles) each employ more than 94,000 employees. Employment levels such as this help to create and maintain jobs in economy. Consequently this means less unemployment and more income for the economy; demand for goods and services goes up; and spending is increased, resulting in more employment in the production of goods and services.

Economies of scale and high levels of production

Large businesses are able to produce significant quantities of goods at reduced cost. Economies of scale are achieved; large organisations incurr lower costs per unit of output because they operate on a large scale. Consequently, lower costs in production should result in lower prices for the consumer.

Economies of scale also lead to higher and more efficient levels of production. In fact, large-scale account for about 70 per cent of all the goods and services produced by the private sector. This level of production makes up a considerable part of Australia’s gross domestic product (GDP). GDP is a measure of all the goods and services produced in the economy in one year. On average, large-scale organisations contributed over 55 per cent of Australia’s GDP.

Improvements to Australia’s industrial base

Large businesses help provide a solid industrial base in Australia by stimulating the growth of capital infrastructure. Large businesses, particularly transnational corporations, are large investors in equipment, machinery and state-of-the-art technology. Most large businesses are also concerned about developing world’s best practice in their particular industry. This means that they are continuously trying to improve what they do so that they can be a world leader in their particular industry.

Research, development and innovation

In the competitive search for better products and to develop world’s best practice, large-scale organisations invest in research and development (R&D). Investment in R&D will not only help to develop better products and improved methods of production, it will have flow-on effects throughout industry and society. For example R&D by Telstra into communications technology could lead to improved communication systems for society in general.

Innovation means doing things in new and better ways, developing novel and clever solutions to problems, using the skills and technologies of the future and overcoming barriers to improvement. Innovation is an important ingredient for success in all types and sizes of business. It is needed to take advantage of business opportunities and to solve problems. For example, in the communications industry 3G networks have allowed customers to access the Internet on a mobile phone handset.

Export earnings

Australia has traditionally been a large exporter of primary products and has had to rely on imported goods. However, in more recent times the Australian government has encouraged Australian industries to develop their own export markets. Australian exports help to earn foreign income for Australian businesses. The export of Australian manufactured goods has increased in recent years. This is important for Australia’s future because it helps retain employment in Australia, while earning valuable foreign income at the same time.

The Australian Economy: role of government

The government has many  important roles to play in the Australian economy. These roles include:

1. MANAGING THE ECONOMY

There are two basic economic problems that the government tries to solve in managing the economy. These problems are inflation and unemployment. In Australia, the government is continually trying to manage or solve these two problems.

Discussion Questions

1. In what ways does the government try to solve inflation?
2. In what ways does the government try to manage unemployment?

2. DISTRIBUTION OF WEALTH

In a market capitalist economy like Australia, the government is concerned that income is distributed fairly between all members of society and that all members of society are able to earn some form of income.

Discussion Questions

1. In what ways can people earn income in Australia?
2. How does the government provide for those who are unable to earn their own income?
3. How does the government play a role in distributing income more fairly in Australia?

3. RESOURCE ALLOCATION

A third role of government in a market capitalist economy is to make sure scarce resources are allocated as efficiently as possible. In doing so, the government is making sure everyone has access to a reasonable  standard of living – things like access to health services, education and transport.

Discussion Questions

1. Do you think the government should be responsible for providing services like health, education and transport?
2. Should business play in providing basic service in the economy?
3. What is privatisation? What are some basic services that have been privatised in the last fifteen years?

The Australian Economy: a market economy

Australia is a market capitalist economy. Other market capitalist economies include the USA, the UK, Japan and Germany. In a market capitalist economy, most of the productive resources (capital) are owned by private individuals. In these economic systems it is the ‘market’ or price that determines how resources are allocated (or what will be produced). Capital is attracted to (or invested in) areas that attract the greatest return or profit.

Characteristics of market capitalist economies include:

1. The government plays an important role in running the economy. It does this by setting economic policy objectives.
2. Many small, medium and large business produce goods and services. Large businesses tend to dominate the market place.
3. Many workers belong to a trade union. In some industries trade unions have considerable market power.

In the next series of posts we will look at each of these characteristics in relation to the Australian economy.