Topic: Economic Principles and Decision Making

Order Description Reflective Analysis reporting and responding to a critical issue or experience; 1. relating this issue or experience to your own knowledge in this field; 2. reasoning about causes and effects of this issue/experience according to relevant theories or literature and/or similarities or differences with other experiences you've had; and 3. reconstructing your thinking to plan new ways to approach the issue or engage in similar experiences in the future, WILL required the report to be as follows linking between first Assessment and second assessment First assessment made by your company please let me know if you need a copy 1-Executive Summary ( 1 Page ) no repetition in wording 2-Introduction (half of Page) 3-Body of the report 4-conclusion (1 page) please check the Assessment brief for Guide line of work Learning Rubrics Page 4 and 5 https://www.smh.com.au/business/milk-wars-farmers-lash-out-at-woolworths-afl-dairy-ad-20150527-ghak0u.html Also you could discuss the recent act of the big 4 banks and increase of the interest rates however the RBA Hold the interest rate steady they could use only 25 of the 30, but not less than 20 of them researching for materials is not an issue, but organizing the finding with a high analytical skill this what I need with fast reader Executive Summary The Australian employment rates, as highlighted in assignment 1, has been rising in the past 3 decades. The rise however has not been constant along all the industries. Some industry are expected to continue experiencing a rise in employment levels while other are expected to experience a decrease in employment level. The projection in employment levels can be explained through Cobb-Douglas production function. The increase in employment levels experience in some firms can be attributed to an increase in demand for output, as highlighted by the production function, an increase in output can be guaranteed by an increase in input, precisely labour and capital. On other hand, the expected decrease in labour input is related to decreasing relationship between input and return to scale. This relationship suggests that the increase in input would lead to lower input. As a result, firms are likely to avoid investing in high labour input to prevent its negative relationship with input. Underemployment has also been identified as a major factor in Australia. While unemployment rate is decreasing, underemployment has is increasing raising economical, ethical, and social concerns. Introduction Assignment 1 established that Australian employment rates have steadily been rising for the past 3 decades. On the other hand, the unemployment rate has remained relatively low during the same period. In fact, Australia appears to have lowest levels of unemployment rate compared to other developed countries such as the United States, United Kingdom, Germany and France. The regression analysis conducted in the assignment linked the positive employment rate in Australia to the profitability experience by firms in major sectors. Precisely, the assignment established a positive relationship between the profitability of key industrial sectors and employment rate in the country. Unemployment rate in Australia is likely to remain low provided the industries remain profitable. The potential for high profit will continue motivating firms to produce more output. In turn, firms will continue hiring more labour to enable them produce more output. The amount of labour a firm employs is directly dependant on the amount of output it wishes to produce. Concurrently, the amount of output produce is directly dependent on the cost of production, which include the cost of labour (El-Halwagi 2006). Therefore, production functions and cost functions plays a significant role in determining the future employment levels in Australia. Production process Before highlighting how the production function is likely to influence employment levels in Australia, it is important to first define production from an economic perspective. Production process can generally be defined as the process of evaluating and hence aligning the various factors of production to produce the desired output in the most cost-effective manner (El-Halwagi 2006). Production function is a critical tool in the production process because it highlights the maximum quantity of output a set of input can produce (Porter & Stern 2000). Mathematically, production function is expressed as: Q=Quantity of output produced K=units of Capital L=units of labour Cobb-Douglas production function is particularly effective in highlighting current and future employment levels in Australia because the function highlights the technological relationship between the inputs (labour and physical capital) and the output (El-Halwagi 2006; Porter & Stern 2000). Mathematically, Cobb-Douglas production is expressed as: Y = ALαKβ, Where Y represent the total, production, L is the labour input, K is the capital, A is the total factor productivity and α and β are output elasticities. The production function in essence highlights the relationship between output and input. The need to produce more input will definitely pressure firms to utilize more inputs thus raising the employment levels in the country. Assignment 1, established that profitability of Australian industry has been rising in the recent past, thus motivating firms to increase their output. An increase level of investment and employment is likely to accompany this rise since, as highlighted by the production function, total output can be increased by increasing input, capital and labor(Ackerberg, Frazer & Caves 2006). Coubb-Douglas production function nonetheless does not claim that the relationship between input and output is always is positive. Sometimes, this relationship can lead to either a decrease, or increase, or constant return to scale (Foster, Haltiwanger, & Krizan 2006). Australian Job Market Production As highlighted in assignment one, and confirmed by further research, the growth of Australian labor market has slowed down in the recent past. Between 2009 and 2014, the employment level increased by 7.3%, which is equivalent to creating 791, 000 new jobs. This figures is significantly low when compared to the growth rate 13.3% or 1, 263, 700 growth rate experienced between 2004 and 2009. Nonetheless, the rise in employment rate, as highlighted in figure 1, is expected to continue rising well beyond 2018. The distribution of this growth in employment however will vary across key industries in Australia (Department of Employment 2014). Figure 2 highlights the projected growth rate in each sector. Health care and social assistance sectors are likely to experience the highest growth rate, while Agriculture, Forestry and fishing, mining, and Manufacturing industries are projected to experience a negative growth rate. The five industries projected to have the highest increase in employment levels are expected to contribute more than a third of the new jobs created in the country (Department of Employment 2014). Application of Production function to projected employment growth Coubb-Douglas production function can be used to explain why some industries in Australia are expected to experience and increase in employment while others experience are a decline. The industry projected to experience in employment levels are currently or in future likely to experience an increase in demand for their goods and services. As highlighted by Cobb-Douglas production function, to increase their output, firms must increase their input. The law of demand and supply studied while preparing assignment one also confirmed Cobb-Douglas notion. The law of demand and supply suggests that a high demand lead to an increase in price of goods and services produced. The higher price is likely to compel the supplier to produce and hence supply more goods and services (Levinsohn & Petrin, 2003; (Department of Employment 2014). To put the theory into practice, the projected rise in employment levels in the Health Care and Social Assistance industry can be linked to the ageing Australian population, adoption of the National disability, and the increasing health consciousness of the Australian people, all which lead to higher demand for health care and social services. Employers in this industry, in line with production function, have ow will likely opt to increase output (production of health care services) by increasing labor. They might have also opted to increase capital since enhance investment is evident in the country (Department of Employment 2014; Welfens, 2005). Similarly, School education is projected to experience an increase in the employment levels due to the demand presented by the higher than average school aged Australian population. Such large population implies that the industry must consequently produce more than above average output implying that they must increase their input (precisely labor and capital) (Department of Employment 2014; Welfens, 2005). However, it is worth noting that the projected decline in employment levels in some sectors does not necessary mean that the output or productivity of those sectors is currently or expected in future to decline. As highlighted by production function such as Cobb Douglas production function, the relationship between output and input is dependent on the output elasticity. Output elasticity can determine whether this relationship is constant, increasing, or decreasing. The expected decline in employment rate in some of the Australian industry can be due to a decreasing relationship between output and input. In such a scenario, an increase in input, such as labor, will lead to a decrease in returns to scale, or rather, profitability. Firms will only seek to increase their input if the output elasticity leads to constant or increasing return to scale (Department of Employment 2014; Welfens, 2005). The concept of decreasing return of scale is similar if not the same as the law diminishing marginal product of labor. When a diminishing marginal product of labor is reached, an increase in labour does not lead to any significant contribution to output. In fact, the increase is likely to be counterproductive in that it may result in decrease in output. The law of diminishing marginal product of labour and the concept of decrease return to scale are related to the concept of disequilibrium supply and demand (Department of Employment 2014; Welfens, 2005). The concept of disequilibrium supply and demand in relation to the labor market was discussed in assignment one. The concept is investigated further in this assignment to cover how disequilibrium in supply and demand for labour affects employment levels. Disequilibrium can occur if there is either excess demand or supply. To warrant a reduction in employment levels, there must be excess supply of labor force. This will lead to a reduction in wages consequently discouraging suppliers from supplying labour. An equilibrium state will be achieved when the excess supply is eliminated. Excess supplier is particularly likely to be eliminated through the price discovery process, whereby the price of labour input (wages) reduces consequently discouraging the supplier from further providing the input (see figure below). Excess supply concept combined with the law of diminishing marginal product of labour has played a big role in the declining employment level in some industry (Deaton & Muellbauer, 2010). Figure 3: Disequilibrium Supply and Demand: Excess Supply Putting theory into practice, evidence related to Australia manufacturing industry does not suggest that the declining employment level in this industry is result of the industry slowdown or a desire by firms participating in the industry to reduce their output. On the contrary, this industry has been growing at relatively high rate of approximately 0.9% for the past one year. In addition, the industry contributes significantly to the Australian GDP. It precisely contributes about 8.7% of the country’s GDP. This statics generally indicate that the higher the output produced by this industry, the more beneficial it is for the country (Department of Employment, 2014; NSW Business Chamber, 2011). Therefore, decision makers should be focusing on increasing the input (labour and capital) required to increase the input produce by this industry. Unfortunately, the projected employment figures relating to this industry does not suggest that decision makers are increasing the inputs required to increase the output of this industry. A critical look on this industry however appear to suggest that the industry has reach a point of decreasing return to scale, or rather diminishing marginal product of labour (Department of Employment, 2014; NSW Business Chamber, 2011). At diminishing marginal product of labour, an increase in labour input will not significantly influence the quantity of output produce, or might influence this output negatively (Deaton & Muellbauer, 2010). A clear attribute that indicate this industry might have reached a point of diminishing marginal product of labour is the high level of innovation and effective utilization of technology. Manufacturing process are increasingly being automated thus reducing the need for human labour. In fact, manufacturing company that insist on using traditional human labour at the expense of labour are likely to suffer relatively low productivity and the associate profitability. Labour intensive manufacturing process are currently facing a diminishing return to scale and thus the sector is currently moving to an automated process that involve hiring less people. It is for this reason that the Manufacturing and its related mining and Agriculture, Forestry and Fishing industries are projected to experience decline in employment levels (NSW Business Chamber 2011). Inflation rate Inflation rate can be used to explain current and future employment rate in Australia. The relationship between unemployment and inflation is adequately addressed by the Philips curve. The curve suggests adjustment in unemployment levels directly affect price inflation levels. Particularly, the curve suggests that there is an inverse relationship between unemployment and inflation rate. The higher the inflation rate, the lower the unemployment rate, and vice versa (see figure 4). The curve was developed in time whereby Government intervention were arguably effective. The Government therefore could easily set stimulus to easily achieve a target inflation rate and hence influence the level of employment within the country (Palley, 2003). Figure 4: Philips Curve The Reserve Bank of Australia (RBA) targets an inflation rate of 2% to 3%. According to RBA, this low levels of inflation allows for various aspect of the economy to run smoothly. An inflation target that support economy growth will allow economic actors to operate smoothly. To be precise, maintaining price stability ensures there is no shock in demand and supply for goods and services. A stable demands for goods and services also ensures employees (labour input) needed to produce these goods and services is always in demand. The employment levels is therefore maintained at desirable levels (Lowe, 2012). In line with Philips curve, Australian Government employs fiscal policy to influence inflation and hence affect the unemployment level in the country. Government can adopt either expansionary or contractionary policy. Expansionary policy are aimed at expanding the economy and employment levels. Consequently, (in line with Philips inflation curve) these policies are likely to lead to an increase in inflation rate. On the other hand, contractionary fiscal policies are geared towards slowing down the economy. The policies are likely to reduce the employment levels and inflation rate experience in the country. Expansionary policies are concerned with increasing Government spending and reducing taxes. These types of fiscal policies are particularly effective during period of economic slowdown or recession (Lowe, 2012; Palley 2003). Australian Government adopted an enormous expansionary policy during the 2008-09 Global financial crises. The Australian Government responded to the crisis by launching a stimulus package that was equivalent to 4.6% of the country’s 2008 GDP. The objective of the Government in launching such a stimulus package was to stimulate the economy. The economic reasoning behind increase government spending and reducing taxes was that the stimulus would stimulate growth. It can stimulate growth directly by reducing taxes. A reduction in taxes increases the money available to consumer for spending. An increase in disposable income will consequently lead to an increase in aggregate demand. In addition, the increase spending could be geared towards creating infrastructure that supports businesses and future investment. Both these type of effect can result in higher employment levels (Lowe, 2012; Palley 2003). While using expansionary fiscal policy to increase employment, Australian government should be keen on the impact of these policy on inflation rate. Any benefit derived from increasing spending can be quickly wiped out by high inflation rate. As explained by the Philip curve, the increase in the demand of labour brought about by increase in government spending decreases the labour pool. This gives labour suppliers, or rather workers, a high bargaining power for nominal wages. As a result, the wage cost rise forcing firms increase the prices of their product and services to cover for the high labour cost. A higher price of goods and services implies a high inflation rate (Lowe, 2012; Palley 2003). Underemployment While it is encouraging to see low unemployment levels, an issue of concern is the high underemployment level existing in Australia. Underemployement refers to a situation whereby individuals work for less than average amount of time. It may also imply situation whereby workers work for jobs that they are over qualified and hen. In both these scenario, the individuals are likely to be underpaid, in most cases being paid only the minimum wage. According Moloney (2013), chances of being underpaid are high in capitalist society like Australia, whereby individual and firms are concerned with pursuing only their self-interest. Underemployment that is accompanied by low incomes is not only an economic issues, but also can extent to be human right issue (Moloney, 2013). This particularly true in cases whereby firms deliberately engage in underemployment to reduce their labour cost. Underemployed workers do not enjoy job security. They are often employed as causal workers with unfavourable superannuation accumulation. The seriousness of underemployement was recently highlighted by a study conducted by the National Centre for Social and Economic Modelling (Moloney 2013). According to this study, a family that is supported by a person who is underemployed has 17% chance of suffering poverty while that supported by a fully employed person has only 3% chance of living under poverty (Moloney, 2013). Underemployed employees faces problem that are directly related to their employment, such low job satisfaction, morale, stress and depression, as well as other indirectly related problems. For instance, such employees may not qualify for financing from financial institution due to their insufficient income and lack of collateral to secure loans advanced to them. In addition to having adverse impact on social and micro-level, underemployment has significant negative effect on the macro level. To be precise, underemployment rate undermine the effective utilization of labour. The fact that Australian unemployment rate has been decreasing while underemployment has been increasing implies that the country is still not effectively utilizing its labour force. The employment figure released by Australian Bureau of Statistics therefore may not accurately highlight the state of the economy, if the effect of underemployment is not considered (Moloney, 2013). Conclusion Australian employment levels have been increasing in the last 3 decades. However there certain sectors that are expected to experience a reduction in employement levels. From a production function perspective, a reduction in employment levels should be caused by a desire by producers to minimize their labour input and hence control the total quantity output. However, this is not the case; the reduction in output experienced in some industry in Australia is due to a diminishing return to scale. Other factors worth considering is the high level of underemployment in Australian particularly because this is economy as well as a social concern issue. References Porter, M. and Stern, S. (2000). Measuring the "ideas" production function. 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