Question 7 (4 Viewers)

[shakky15]

Even if 10% of hidden unemployed seeks jobs, that would already offset more than enough frictional.

well i dont know how many frictionally unemployed people there are, so i cant offer an argument there. look, im going to give this a rest lol. if someone else posts on here with something new, ill resume my campaign.

i say it C. thats what i think. the end. lol.

PS id LOL if they accepted both A and C.

 

[runnable]

Lol don't be surprised. I think they've done it a couple of times, for other subjects etc.

P.S on frictional point. There are about as many hidden unemployed as those officially unemployed, if not more. So unless frictional accounts for 10% or more of official unemployed (which I highly doubt), I think I'm right.

 

[shakky15]

Lol don't be surprised. I think they've done it a couple of times, for other subjects etc.

P.S on frictional point. There are about as many hidden unemployed as those officially unemployed, if not more. So unless frictional accounts for 10% or more of official unemployed (which I highly doubt), I think I'm right.

maybe, but i dispute ur whole hidden unemployment argument altogether, because of the word 'initial'.

and dont post back to say 'u got it! hidden unemployment will intially become unemployed!'

i just dont accept that argument ok? lol.

 

[runnable]

maybe, but i dispute ur whole hidden unemployment argument altogether, because of the word 'initial'.

and dont post back to say 'u got it! hidden unemployment will intially become unemployed!'

i just dont accept that argument ok? lol.

Well.. Luckily you're not the one marking.

 

[danibop]

its A. how can unemployment decrease further if its at the natural rate?

Australia's unemployment rate 4.2% (sept) CLEARLY below NAIRU rate

 

[shakky15]

Australia's unemployment rate 4.2% (sept) CLEARLY below NAIRU rate

weve established that the NAIRU may have ben miscalculated.

 

[lilley.matthew]

It's true that the NAIRU may have been miscalculated- or to be more correct it is a dynamic concept. However, very few economists would state that its below 4%. In all truth though, whether we are below the NAIRU is largely irrelevant- it was merely an attempt to explain the obvious fact that economies can, and do, go below their natural rate/NAIRU. Hence the term non-accelerating inflation...

I agree that cost-push inflation is not the only inflation that will occur- of course demand-pull is likely. The arguement is not that if hidden unemployment falls that no inflation will occur (although it will be lessened by a looser labour market). The important thing is that the labour market itself has not caused inflation- which is the key characteristic of the NAIRU- tight labour itself causing inflation.

Unemployment is an officially measured term. Just as inflation is measured by the CPI, unemployment is measured by a certain process- as above. If the government does not count it; that is because it is not true unemployment; it fails to meet the definition. It is hardly wishful thinking to require a statistic to conform to its definition.

The 'discouraged but skilled' group i referred to earlier will not wait until 'full employment' before looking for work. They will look when sufficiently encouraged-effectively at any stage with strong AD. That's why participation rates rise during strong periods of growth. Thus, hidden unemployment of this sort is much lower by the time the NAIRU comes around because many are now employed. And just being cynical-considering your arguement that the discouraged will only come out at the NAIRU. If economists cannot agree when the NAIRU is exactly, how come the hidden unemployed magically know when it is so they can start seeking work.

 

[lilley.matthew]

Yes it will be rather amusing if they pay both answers.

I must admit i am fairy impressed with anyone who thought of hidden unemployment- but as above am fairly sure that its wrong anyway.

 

[runnable]

It's true that the NAIRU may have been miscalculated- or to be more correct it is a dynamic concept. However, very few economists would state that its below 4%. In all truth though, whether we are below the NAIRU is largely irrelevant- it was merely an attempt to explain the obvious fact that economies can, and do, go below their natural rate/NAIRU. Hence the term non-accelerating inflation...

I agree that cost-push inflation is not the only inflation that will occur- of course demand-pull is likely. The arguement is not that if hidden unemployment falls that no inflation will occur (although it will be lessened by a looser labour market). The important thing is that the labour market itself has not caused inflation- which is the key characteristic of the NAIRU- tight labour itself causing inflation.

Unemployment is an officially measured term. Just as inflation is measured by the CPI, unemployment is measured by a certain process- as above. If the government does not count it; that is because it is not true unemployment; it fails to meet the definition. It is hardly wishful thinking to require a statistic to conform to its definition.

The 'discouraged but skilled' group i referred to earlier will not wait until 'full employment' before looking for work. They will look when sufficiently encouraged-effectively at any stage with strong AD. That's why participation rates rise during strong periods of growth. Thus, hidden unemployment of this sort is much lower by the time the NAIRU comes around because many are now employed. And just being cynical-considering your arguement that the discouraged will only come out at the NAIRU. If economists cannot agree when the NAIRU is exactly, how come the hidden unemployed magically know when it is so they can start seeking work.

1) If you agree that cost push is not the only contributor to inflation during growth, then there is no contradiction in rising unemployment and rising inflation as of option A.

2) I strong object to the notion that if unemployment is not measured, it did not happen. Even if that is the case you're making, the time would still be needed to measure a FALL in unemployment because of whatever reason (structural unemployed gets employed etc etc). That would still require the time to measure unemployment, and thats more than enough time for hidden unemployment to show. Regardless, I still object that if unemployment is not measured, it did not happen. Unemployment is not a term made up by the government. The government provides a figure but the economy knows of its unemployment rate 24/7.

3) Discouraged but skilled group will know when to come out during NAIRU and increase in AD because they will realise normal cyclical folks are not taking up their jobs anymore and there are more jobs on the market. Jobs which structural (majority of Australia's unemployment problem) unemployed cannot go for.

 

[lilley.matthew]

1) If you agree that cost push is not the only contributor to inflation during growth, then there is no contradiction in rising unemployment and rising inflation as of option A.

2) I strong object to the notion that if unemployment is not measured, it did not happen. Even if that is the case you're making, the time would still be needed to measure a FALL in unemployment because of whatever reason (structural unemployed gets employed etc etc). That would still require the time to measure unemployment, and thats more than enough time for hidden unemployment to show. Regardless, I still object that if unemployment is not measured, it did not happen. Unemployment is not a term made up by the government. The government provides a figure but the economy knows of its unemployment rate 24/7.

3) Discouraged but skilled group will know when to come out during NAIRU and increase in AD because they will realise normal cyclical folks are not taking up their jobs anymore and there are more jobs on the market. Jobs which structural (majority of Australia's unemployment problem) unemployed cannot go for.

• I think you misunderstand me. While there is no contradiction between rising unemployment and rising inflation (although its extremely presumptuous to assume this would happen-no evidence), that's not my point. What I am saying is that by definition, any demand stimulus at the NAIRU causes inflation because of the tight labour market. In addition to other forms of inflation occuring, inflation directly due to the NAIRU will occur. However, as you suggest, if labour participation jumps hugely, there is no good reason for inflation related to the tight labour market to occur. Whereas the question clearly states that AD is stimulated at the NAIRU, which your scenario fails to fulfill by not causing the appropriate inflation. Which for your suggestion to be true actually means that the economy musn't have reached the NAIRU, contradicting the question. Thus a proof by contradiction.

• I accept that you don't trust my definition of unemployment, but lets be internally consistent. If we can't use the true definition, what arbitrary definition do we use- (and don't say Unemployed/Labour Force because that's merely the simplified official one). If, as you seem to suggest, we want a 'real' measure of unemployment rather than the official one, its hardly facetious to suggest that hidden unemployment should be included in the unemployment data. Which sort of contradicts your arguement. Naturally enough, this is only half serious- my point is that when there is an official measure maybe its a good idea to use it not an arbitrary one which you define on the spot.

• Wow, if the discouraged but skilled group start coming out (and labour participation increases) when we hit the NAIRU, i wonder why this point isn't used to officially calculate the NAIRU. You've stated an inherant contradiction. If this hidden unemployment only falls as you state (and labour participation rises) at the NAIRU, doesn't this perhaps mean that Australia has been below its NAIRU for several years - check what our labour participation has been doing the last 3-4 years- because the NAIRU must have been back at 6-7%. Which obviously contradicts your own arguements that we are not at the NAIRU. By the way, if the RBA & Treasury cannot exactly measure the NAIRU, how come Yr 12 students have enough skill to definitively state that it was overestimated. It seems that people who fail to understand the NAIRU can be gotten below would desperately claim that the NAIRU was 0 if our economy ever got there during a really strong growth period. And then desperately wonder why wages would spiral... Of course, in reality labour participation rises once AD is fairly strong. And as an afterthought, the structurally unemployed can be employed while still lacking skills. If businesses are desperate they will hire a baker to be a builder etc, because just about anyone can do most jobs- pretty badly- but better than nothing. Its the increase in supply costs caused by hiring inefficient labour that causes unemployment to go back to the NAIRU in the long run.

Quod erat demonstrandum

 

[runnable]

1) The increase in prices referred in the question was not directed to NAIRU. It was attributed to the increase in aggregate demand, which could've been any reason.

2) I never suggested setting up an unemployment rate. The unemployment rate is what it is. Unemployed/Labour force. Just because the government does not measure it, it doesn't mean its not there.

3) We are not at our NAIRU, it has been mis-estimated and I make no attempt to measure it. This has been admitted that the previous measures of NAIRU is wrong because of structural and microeconomic policies reducing the NAIRU and officials did not take into account. I see no contradiction. To be honest, I don't even see the point you're trying to make with your 3rd point.

P.S No a baker wouldn't work as a builder because he wouldn't know how to build. If he did or able to train in it, he wouldn't be structurally unemployed in the first place.

 

[runnable]

You know what... Stop discussing this. Lets just all wait for the answer.

 

[lilley.matthew]

Yes, i know what the question says; that's not what i'm saying. I hope this makes sense.

1. The question involves a stimulation of AD at the NAIRU.
2. By definition, this will cause inflation due to the tightness of the labour market, in addition to other inflation such as demand-pull etc. It adds its own inflationary source.
3. If, as you claim, unemployment will rise due to increased labour participation, this NAIRU induced inflation will not occur.
4. Thus your arguement is contradictory- it takes a situation that must take place at the NAIRU and has an end result that could not have taken place at the NAIRU.

I accept that some inflation will occur whether unemployment rises or decreases. However, only unemployment decreasing will cause inflation due to the tight labour market, and thus be internally consistent with the question

Discouraged but skilled group will know when to come out during NAIRU

We are not at our NAIRU

This is the other contradiction. These two statements fail to hold up against known data.

1. If 'discouraged but skilled' group come out only at the NAIRU, and we are not the NAIRU, then they should not have started coming out yet.
2. Thus Australia's participation rate should not have increased in recent years when we were not at the NAIRU.
3. In fact, Australia's participation rate has increased markedly since 2004.

Of course hidden unemployment reducing is not the only factor leading to increased labour participation. As far as i can tell from a bit of thinking, the groups not working (which thus can increase labour participation if they decide to work) include:

• Students (the significant amount who do not have jobs)- As a group, unlikely to increase participation. This only occurs once they are no longer students etc, new students fill their previous places etc.
• Early retirees- If they retired, presumably it was because they were doing well economically. Unlikely in the extreme as a group to seek work because economic conditions improve.
• Parents (mainly mothers) not working- participation rates of women increased by about 0.6% p.a. for the 30 years to 2005 (which equates to a 0.3% increase in total -male and female- labour participation rates). However, at the same time, male rates have been trending down- more stay at home dads etc, and as females reached effectively the same participation rate as men by around 2004, this growth is unlikely to have continued. Taking these factors combined, they may have led to a slight increase in participation since 2004.
• Hidden unemployment- the main factor that increases participation because they search for work during upswings in growth. There was even a HSC question almost identical to this fact in the past few years. Ergo, the increase in labour participation is mainly due to changes in hidden unemployment

 

[lilley.matthew]

You know what... Stop discussing this. Lets just all wait for the answer.

Aah, well i was too far into replying by then. I'm always happy to discuss

 

[runnable]

Aah, well i was too far into replying by then. I'm always happy to discuss

Oh well I've got things to reply to your previous post but I'll save those till the answers are out.

BTW I meant to say "not below our NAIRU"(as I put out in numerous other posts), it was a mistype. Hence no contradiction.

 

[runnable]

Overall the only way unemployment will fall is if firms hire unsuitable individuals such as structurally unemployed. Thus I have serious doubts.

 

[lilley.matthew]

In brief, yeah sure we could be at our NAIRU now (i severely doubt it, but anyway...), and thus no contradiction in your arguement if participation rises now. But unemployment has been falling for years and labour participation rising as well. We can hardly have been at the NAIRU for all that time. Even though it can change, it's not going to come down that quick. Thus the contradiction remains-really hasn't changed at all. And for example, U was 3.9% a few months ago, about 4.3% now i think. Does that mean our NAIRU was 3.9% at the time? And has it jumped up to 4.3% now? And what increase in structural problems caused that?

Apart from that, the scenario you described:
AD is stimulated at the NAIRU
Business demand more labour. No efficient labour available so they hire the next best thing- inefficient labour (the structurally unemployed who lack sufficient skills to be employed under usual circumstances- but just about everyone has some basic skills in everything-but as they lack 'sufficient skills' to do the job properly, there are still structural problems)
Inefficient labour causes average cost of production to rise, inflation increases, businesses shed back to the NAIRU

Is precisely the long run phillips curve- smart man Friedman-coherently explain why it's wrong

 

[runnable]

Apart from that, the scenario you described:
AD is stimulated at the NAIRU
Business demand more labour. No efficient labour available so they hire the next best thing- inefficient labour (the structurally unemployed who lack sufficient skills to be employed under usual circumstances- but just about everyone has some basic skills in everything-but as they lack 'sufficient skills' to do the job properly, there are still structural problems)
Inefficient labour causes average cost of production to rise, inflation increases, businesses shed back to the NAIRU

Lol NO.

Baker wouldnt be employed as a builder because he doesnt know how to build. If he was able to work as a builder, he would never have been structurally unemployed in the first place.

 

[lilley.matthew]

A baker could be employed as a builder if neccessary, even if he lacks the normal skills. ie. anyway can lay bricks, they may just be a lot slower at it than the efficient builders. They would still be structurally unemployed under usual circumstances because they lack the usual skills to a sufficient level.

Structural unemployment does not require the unemployed person having no skills in the field in question; just inadequate skills to be efficient. This is true even in the higher order professions; take barristers for example. Most people can argue relatively coherently, they can interview a witness with preorganised questions. As such, if a business really wants labour such people are better than nothing, so they will be hired. But under usual conditions they are still structurally unemployed. If you are going to insist that being structural unemployed means having no skills whatsoever, then structural unemployment is effectively zero.

Noted silence in response to my first point

 

[BackCountrySnow]

Lol NO.

Baker wouldnt be employed as a builder because he doesnt know how to build. If he was able to work as a builder, he would never have been structurally unemployed in the first place.

The baker can build bread houses and the builder can bake brick breads.


Therefore, it is C.