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Full Employment

Economics (Year 12) - Economic Policy Objectives

Christian Bien

What is it?

The objective of full employment considers the objective of NAIRU - that is the Natural Accelerating Inflationary Rate of Unemployment. NAIRU simply means the lowest unemployment rate that will have little or no effect on inflation. Employing too many people is likely to result in too much inflationary pressure as the economy will experience unsustainable and overwhelming levels of private spending.

Why is it Important?

The Government has a role to encourage as many people as possible to work. Low levels of unemployment encourage economic growth and increase standards of living. In addition it also provides additional revenue to the government from income taxes and taxes on expenditure. Full employment is important as it aims the government to target an unemployment rate that will still keep inflation within the 2-3% band. It is not possible to have 0% unemployment due to hardcore, structural and frictional factors always being prevalent within the economy.

What is the Target for Full Employment?

The target for full employment is typically at 5%, the level of potential output. During the mining boom, the unemployment levels reached a low of 4.9% which occurred in April and May of 2011. (ABS - Labour Force, Australia, May 2011)

How can the Government Encourage Employment?

  • Improving access for employers to access job seekers (e.g. JobAccess program)

  • Subsidising training and development to reduce structural unemployment (e.g. HECS)

  • Introducing economic policies to encourage economic activity, which will in turn increase employment

  • Increasing requirements to obtain unemployment related income support (requiring unemployed to regularly apply for positions)

  • Providing financial incentives to participate in work related activities (government providing additional financial support to unemployed people who participate in internships or work experience)

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