Unemployment and Business Cycle in Australia

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The unemployment rate is one of the critical indicators of the labor market and general economic condition. The unemployment rate calculation formula is quite simple — the number of unemployed people is divided by the total number of people in the civilian workforce (Arnold, 2019). In the Australian case, the potential total workforce consists of all unemployed and employed people. As the first step, one has to divide the number of unemployed by the total number of people in the workforce (Reserve Bank of Australia [RBA], n.d.). Afterward, it is necessary to multiply the result by 100 to calculate the unemployment rate.

Two primary unemployment types — frictional and structural- differ by the fundamental cause. Frictional unemployment occurs due to the natural frictions in the economy that force qualified personnel to change jobs (Arnold, 2019). For example, a less successful company may fire some employees due to financial difficulties. Subsequently, these people may be hired by a thriving company in the same industry. In contrast, structural unemployment happens due to societal changes that make certain jobs redundant and create others without specialists (Arnold, 2019). In the Australian case, low overall unemployment numbers coincide with the most severe workforce shortages and high demand for labor (Hannam, 2022). In addition, Andrew McKellar, the chief executive of the Australian Chamber of Commerce and Industry, claimed that long-term vocational education and training are necessary (Hannam, 2022). Therefore, Australia is currently impacted by structural unemployment, as companies cannot find enough qualified people to fill particular vacancies.

Indeed, the overall unemployment rate in Australia is record low. According to Hannam (2022), the unemployment rate in March 2022 was at 4.0% and was forecasted to drop to 3.3% by the end of the year. Arnold (2019) describes five stages of the business cycle — from the peak, when the Real GDP reaches its temporary high, to expansion, which occurs after the Real GDP falls and recovers. As such, the recovery and expansion stages offer the best job opportunities since the companies actively hire new employees as the economy grows. In the Australian case, the country has passed the recovery stage since it reached a record-low unemployment rate. Therefore, Australia is currently in the expansion stage, and another peak might soon follow if structural unemployment is addressed.