Essay On Economics

2130 words - 9 pages

Question 1: Briefly describe the main features of the Australian labour market focusing on the issues of government regulations, role of the unions and immigration. Attempt to model the labour market in Australia using the economic model of demand and supply. In particular, demonstrate how you can incorporate in this model the issues of market segmentation according to the difference in workers’ skills as well as the impact of government regulations and immigration. Australia has a total population of approximately 23 million people, a labour force participation rate of 65.1% and an unemployment rate of 5.6% (Australian Bureau of Statistics 2013). The Australian labour market is subject to ...view middle of the document...

Thus, Unions face a tradeoff between increased wages at the expense of employment (Gans 2012). For this reason, many argue that unions are inefficient for the economy as they can lead to greater unemployment on the aggregate level (Gans 2012).



Market segmentation can also arise from varying levels of human capital in the market. Assuming the firm’s goal is to maximize profit, the firm will seek to hire workers with the highest levels of productivity. That is workers with high human capital, who contribute the highest marginal product (Gans 2012). Therefore, the demand for educated labour is high. Firms therefore will be willing to pay a higher equilibrium wage for high human capital labour, assuming educated labour can contribute the highest marginal product (as illustrated in 1C) (Gans 2012).

Question 2: Is high immigration good or bad for Australia? Discuss gains and losses from the immigration for Australian high-skilled and low-skilled workers. Illustrate your answers on the demand-supply diagram(s) and propose an economic way to measure these gains and losses. Australia has relied on immigration to increase the labour supply when there is a labour shortage. Immigration to Australia can have both positive and negative effects on the Australian economy and labour market. An increase in the labour supply from immigration will cause aggregate equilibrium employment to rise at the expense of a drop in equilibrium wages (as illustrated in 2A). It can be argued that the immigration of high skilled workers to Australia is ‘good’, as it increases our skill base and employment overall. Contrastingly, when there is a surplus of labour, immigration may be bad as it lowers the equilibrium wage and will increase unemployment (Garnaut, Ganguly & Kang 2003). An indirect result of immigration leads to an increase in the average income of Australians, as well as an increase in the relative proportion of workers possessing


high human capital. Similarly, a result of the influx of new workers, employers may choose to hire more employees at a lower equilibrium price. Additionally two gains include the increase in the mean income of Australians and the increase in per capita human capital of Australians (Garnaut, Ganguly & Kang 2003). This shows that we understand the possible gains that these immigrants with higher human capital will provide our economy. Figure
  Simultaneously, immigration brings with it losses. Theoretically, an increase in the labour supply will result in increased employment at the expense of a drop in wages, as illustrated in 2A. An increase in employment from E1 to E2, results in a drop in wages from W2 to W1. Thus, paradoxically the increase in the labour supply can actually create unemployment (as illustrated in figure 2B). A more in depth way of looking at this is by separating immigrants into two groups; those...

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