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1 Introductory concepts 2  Market mechanism  3 Elasticities  4 Market structures 5  Market failures  6  Macro economic activity/eco growth  7 Inflation 8  Employment & unemployment  9  External Stability  10  Income distribution 11.Factors affecting economy  12  Fiscal/Budgetary policy  13  Monetary Policy   14 Aggregate Supply Policies  15 The Policy Mix

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Participation rates

As discussed earlier, the participation rate is calculated as members of the labour force as a percentage of the working age population. When it increases, it typically means that more members of the working age population are either seeking work or have entered the labour force and become employed.  This effectively increases the supply of labour available to be used by industry.  A higher labour supply eases potential labour shortages and can exert downward pressure on the real costs of labour, reducing the average costs of production (more favourable supply conditions).  It is also possible that a higher labour supply increases pressure on those already employed to lift performance, thus having a favourable impact on labour productivity.  These factors place downward pressure on inflation, assisting with the low inflation goal and providing a stimulus to economic growth.  Over time, it is expected that employment should increase and unemployment fall - assisting with full employment.  However, higher participation rates can actually increase the unemployment in the short term, hindering the achievement of full employment. This is because higher participation rates initially mean that more people enter the labour force looking for work.  This causes the unemployment rate to rise until the new labour market entrants eventually find work.

With higher economic growth and a lower unemployment rate over time, it is expected to make the distribution of income more equitable as less people will be relying on welfare.  With respect to the impact on the achievement of external stability, the lower production costs for businesses (or more favourable supply conditions) and lower inflationary pressure, should improve international competitiveness of Australia's tradables sector, increasing net exports, improving the Balance on Goods and Services, reducing the CAD and Australia’s reliance on NFL’s (NFD or NFE).

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