International Outsourcing and Unemployment †MyAssignmenthelp.com

Question: Discuss about the International Outsourcing and Unemployment. Answer: Introduction The identified study focuses on the current economic debate on whether Australian government should abolish the existing minimum wage as a part of economic reforms. Precisely, a number of economists and policymakers have advocated the burden of the system of discriminatory minimum wage pointing out the negative aspects of the system. The existing minimum wage arrangement in Australian economy states that an employer must hire an employee at a minimum of $16.87 per hour in 2016 (ABC News, 2016). Evidently, the restriction in employment under the minimum wage system arrangement has incurred the fiscal burden of the government. In the current economic scenario, many of the economists have voted for abolishing the minimum wage system. One of the leading points of the discussion is whether the minimum wage system is a job killer or job creator in the Australian economy. Since the inception of the minimum wage system in 1907, the system has been criticised for a number of times as it is believed that the system creates restrictions in employment. At the same time, the study identifies how the high rate of minimum wage can increase the rate of unemployment in Australia. Based on the studies and economic model of supply and demand, at the end of the study, the verdict has been made whether the government should abolish the system of the minimum wage. While the debate on abolishing minimum wage system continues, it is important to identify how the system affects the rate of unemployment in an economy. Evidently, based on the economic concepts and theoretical models, it is extremely difficult to accurately track the impact of minimum wage rate on employment status (Novak, 2014). In an economic research paper, David Metcalf stated that it is almost impossible to record the change in employment status based on the minimum wage policy of government as employment scenario reacts gradually in accordance with the change in the minimum wage rate (ABC News, 2016). In the long-term view, there are a number of other factors than minimum wage rate affecting the employment condition of an economy. From the research study of the author, it can be found that due minimum wage system, the employers want to reduce working hours for the low-skilled employees (Meer and West, 2013). However, the overall rate of unemployment will remain unchanged. In the context of the system of the minimum wage rate, the current unemployment condition in Australia has been elaborated to signify whether the increase in minimum wage rate has affected the unemployment. In the current state of scenario, the adjusted unemployment rate in Australia is recorded at 5.6 percent in July, 2017 (Abs.gov.au, 2017). The rate of unemployment is revised from 5.7 percent in the previous month to 5.6 percent as the economy has added 27,900 jobs. Clearly, the unemployment rate pattern in Australia remained over the mark of 5 percent since 2012. However, in a recent labour market reform, the Fair Work Commission increases the minimum wage rate by 3.3% from $17.70 to $18.29 per hour for low-paid workers (Hannan, 2017). In the meanwhile, employers in Australia have slammed the decision of the Fair Work Commission stating that the verdict will slow down economic growth (Hannan, 2017). Precisely, the outcome of the decision may contribute towards an increase in unemployment as well. Due to high rate of minimum wage, Australian employers will surely adopt the technique of outsourcing instead of hiring employees (Karp, 2017). Thus, the risk of unemployment will be influenced by the decision of high wage rate. Demand and Supply Factor in Labour Market By applying the theory of demand and supply in the Australian Labour market, it is important to note that the equilibrium wage rate depends upon the quantity demanded and quantity supplied of labour in the employment market. Currently, the increase in the supply of unskilled labours and fall in the demand is leading to a decrease in the equilibrium wage rate in the market (Basu and Felkey, 2008). However, the government of Australia is keeping on increasing the minimum wage rate by using its price flooring policy. Hence, an excess in the supply and fall in the demand can be evident in the Australian Market that has become a major political concern for the current government. A diagram has been presented herein below for better understanding: It can be seen from the above diagram that the current demand and supply in the Australian Labour market presents the equilibrium wage rate at We and equilibrium quantity at Qe. On the other hand, the governments price flooring policy increases the minimum wage rate to Wm that results in a fall in quantity demanded to Qd and increase in quantity supplied to Qs (Danziger, 2014). Hence, an increase in the unemployment rate can be evident in the Australian market occurring due to structural and cyclical unemployment. The International Monetary Fund presented a report on 2014 saying that the hike in the minimum wage rate impacts the employment of the younger population that makes up the large proportion of low pay and low skilled workers in the economy (ABC News, 2016). For instance, it can be seen from the ABS report that the youth unemployment rate in Australia has increased with the increase in the minimum wage rate in the last 5 years. A figure has been presented herein below for fur ther understanding: Recommendation Furthermore, a conflict can be seen between the Abott Government and the opposition regarding the minimum wage rate in the Australia Labour market (Novak, 2015). On the basis of the above analysis, it can be seen that the minimum wage rate impacts the employment level of the younger generation people and unskilled workers leading to cyclical and structural unemployment. However, it is important for the government to regulate the labour market in order to safeguard the rights of the low skilled people and younger generation who have lesser experiences (ABC News, 2016). Hence, the abolishment of the price flooring policy in the labour market will not be a good idea. In place of abolishing the minimum wage rate, the government can implement a lower minimum wage rate for the younger generation people and labour class people with lower skills to eliminate the issue of fall in demand and excessive supply in the market. Conclusion By considering the above analysis, it can be seen that the price flooring policy implemented by the Australian government in the labour market helps to safeguard the rights of equal compensation for the people. However, the increase in the minimum wage rate has emerged to be a major problem for the younger population that makes up a high proportion of low pay and low skilled workers. A drastic fall in the demand and oversupply of workers can be evident in the Australian market resulting from structural and cyclical unemployment. Hence, it is important for the Australian Government to introduce a lower minimum wage rate that is equivalent to the equilibrium wage rate in place of abolishing the minimum wage rate policy to promote employment and growth in the economy. References ABC News. (2016).Does the minimum wage increase unemployment?. [online] Available at: https://www.abc.net.au/news/factcheck/2015-03-12/minimum-wage/6290482 [Accessed Aug. 2017]. Abs.gov.au. (2017).Unemployment Rate Australia. [online] Available at: https://www.abs.gov.au/ausstats/abs@.nsf/mf/6202.0?opendocumentref=HPKI [Accessed Aug. 2017]. Basu, K. and Felkey, A. (2008). A theory of efficiency wage with multiple unemployment equilibria: how a higher minimum wage law can curb unemployment.Oxford Economic Papers, 61(3), pp.494-516. Danziger, L. (2014).The elasticity of labor demand and the minimum wage. 4th ed. Bonn, Germany: IZA. Hannan, E. (2017).Minimum wage rise devastating. [online] Theaustralian.com.au. Available at: https://www.theaustralian.com.au/national-affairs/industrial-relations/minimum-wage-to-be-lifted-by-33-per-cent-to-1829-an-hour/news-story/ea540d229e58b82a4b41b07cb60957dd [Accessed Aug. 2017]. Karp, P. (2017).Minimum wage to rise by $22 a week after Fair Work Commission ruling. [online] the Guardian. Available at: https://www.theguardian.com/australia-news/2017/jun/06/minimum-wage-to-rise-by-22-a-week-after-fair-work-commission-ruling [Accessed Aug. 2017]. Meer, J. and West, J. (2013).Effects of the minimum wage on employment dynamics. 2nd ed. Cambridge, Mass.: National Bureau of Economic Research. Novak, J. (2014).Minimum wage is anti-jobs and should be abolished. [online] Canberra Times. Available at: https://www.canberratimes.com.au/comment/minimum-wage-is-antijobs-and-should-be-abolished-20140512-zra8p.html [Accessed Aug. 2017]. Novak, M. (2015).Time for discriminatory minimum wage to be abolished. [online] The Sydney Morning Herald. Available at: https://www.smh.com.au/comment/time-for-discriminatory-minimum-wage-to-be-abolished-20150206-137pde.html [Accessed Aug. 2017]. Zhang, T. (2011). International Outsourcing and Unemployment in a Minimum-wage Economy.Review of International Economics, 19(4), pp.776-786.