ECON152 | Microeconomics | Unemployment and Wages In The Labor Market

e common. Most governments also treat unemployment especially among the youth with utmost priority as they seek to achieve levels of full employment.

Unemployment is a situation in which human resources are readily available and are capable of being utilized to generate returns but are either underutilized or completely unengaged (Keynes, 2018). Labor is an important factor of production besides capital and enterprise. Optimum utilization of labor increases productivity while unemployment breeds lower economic growth and a poor society.  In Australia, unemployment rate as at September 2018 stood at 5.2%.  The Australian Bureau of Statistics reported that, unemployment declined by 26,500 from August. The statistic continues the continuous steady decrease in the rate of unemployment in Australia in the recent months. Figure 1 below shows the trend of unemployment rate in the country between September 2017 and September 2018. From the graph, it is evident that the rate of Australians who are involuntarily unemployed has been declining steadily over the last one year.

Figure 1

Causes of Unemployment

There are many factors that perpetrate labor imbalance in an economy. The nature of education system determines the readiness of individuals to take up employment opportunities in the job market. It has been noted that, the high rate of unemployment especially in developing countries is contributed by education systems that are white-collar oriented (Mankiw, 2014). Fast developing countries such as China have an education system that is biased towards technical skills. Technical skills promote self-employment and innovation and therefore ensuring that people secure employment opportunities in areas that require skilled labor and specialized training (Parker, 2018).

The rate of population growth relative to the rate of economic growth also determines unemployment rate. When population growth is faster than economic growth, jobs created would not satisfy the rising population (Leamer & Stern, 2017). Rural urban migration, lack of political good will to fight unemployment, demand inefficiency, and general mismanagement of resources are other factors that perpetrate unemployment. The government and the private sector should therefore corporate in developing demand side and supply side policies that promote employment.

Wages are monetary remuneration paid to an employee by her employer as compensation for service offered and time. The tern in most instances refers to daily pay which is different from salary which is a monthly pay. The amount of wage offered to an employee is determined by her skills, education, supply and demand factors, and monetary benefits of the work undertaken (Feenstra, 2015). Employees offering specialized professional services such as medicine and legal support are highly compensated while those jobs done by unskilled workforce offer lower wage rates. Labor unions are legally recognized institutions that promote rights of employees. They consist of employees operating in related professions. The Union negotiates for desirable wages on behalf of employees.

The labor market is characterized by employees and employers who provide supply and demand of labor respectively. It consists of companies that hire individuals and skilled and unskilled persons. When labor demand is greater than supply, minimum wages might rise while wages are low when demand for labor in the economy is lower than supply.

Conclusion

The labor market is an essential component of the economy. It is characterized by a pool individuals who are either employed or unemployed and persons that offer job opportunities. Wages are paid to workers for services offered. Higher wages promote employee satisfaction and job efficiency. Unemployment occurs when demand of jobs in the economy is greater than supply. Governments in most countries aim at achieving full employment through implementing supply side and demand side policies. The aim of monetary policies for instance is to control inflation, boost economic growth, achieve full employment and ensure stability of currencies. Wages are influenced by the supply-demand relationship of labor. When supply for labor is greater than its demand, wages are pulled down since employers have greater bargaining power and a large pool of employees to choose from.Contrastly, when labor demand is greater than demand like in some technical professions, wages are higher.

References

Agénor, P. R., & Montiel, P. J. (2015). Development macroeconomics. Princeton University Press.

Feenstra, R. C. (2015). Advanced international trade: theory and evidence. Princeton university press.

Keynes, J. M. (2018). The general theory of employment, interest, and money. Springer.

Leamer, E. E., & Stern, R. M. (2017). Quantitative international economics. Routledge.

Mankiw, N. G. (2014). Principles of macroeconomics. Cengage Learning.

Parker, S. C. (2018). The economics of entrepreneurship. Cambridge University Press.