Structural Unemployment

Education and training programs are designed to up skill workers within an economy. These programs tend to target the lowly skilled or the development of skills that employers are currently demanded.

A significant portion of those who are actively seeking work do not have the necessary skillset for the jobs available in the Australian economy. This mismatch is known as structural unemployment and is known for its prevalence amongst young Australian who have not had the same opportunity or time as older Australians to develop necessary skills. Effectively, education and training programs elevate the skillset of recipients, providing them with the skills to become ‘job-ready’, which in turn reduces the rate of structural underemployment within an economy.

NAIRU

The NAIRU (Non-Accelerating Inflation Rate of Unemployment) , also known as full employment, is the rate of unemployment where there is 0 cyclical unemployment, a measurement with only other types such as structural and frictional unemployment. Through the implementation of education and training programs, government policy could reduce the NAIRU, by decreasing structural unemployment as mentioned above.

Through skills formation, this type of government policy’s effects can be categorised and fall under ‘supply side economics’. In essence, this refers to the fact that increasing the skills of young Australians will improve the productivity and increase the productive capacity of the Australian economy.

As indicated above, this will increase aggregate supply and in turn increase economic growth.

Wages: Extended Argument

By increasing the pool of skilled labour in Australia, this puts downward pressure on the wage rate in these industries. As indicated below, an increase in supply of skilled labour will decrease the price of labour (wages).

Increasing the capacity of the Australian economy via education and training programs could create some longer-term effects:

1. International Competitiveness

As discussed above, decreasing wages will reduce the production costs for Australian businesses. This could have a positive impact on the sales within Australia’s exporting industries. By decreasing production costs, these companies are able to pass over these cost savings to potential buyers in the form of lower prices and in turn improve their international competitiveness relative to their competitors, increasing sales, export revenue and injections into the Australian economy.

This will increase the external component of aggregate demand.

AD = C + I + G + (X-M)

2. Brain Drain

Lower compensation packages could mean that skilled labour in Australia migrate overseas in search of greater rewards. This concept is referred “brain drain” where workers are attracted to greater rewards and incentives to work in economies overseas.