Death of Australias Car Industry

Large car manufacturing companies such as Ford, Holden and Toyota will stop manufacturing cars in Australia after 2017. The trade unions fear the departure of the “Japanese motoring giant” will leave 50,000 unemployed and ultimately affect 200,000 jobs. John Spoehr stated “this is the death of the car making industry as we know it”.

Unemployment will be one of the main consequences of the exit of the car manufacturing industry. Unemployment occurs when an individual is actively seeking yet unable to find work. All the workers that will loose their jobs due to the exit of Toyota, Ford and Holden will become structurally unemployed. Structural unemployment arises from a permanent fall in demand for a particular skill or type of labour in the economy. Structural unemployment occurs due to technological advancements, cheaper foreign labour or when certain industries decline due to long term changes in the market conditions.

Figure 1 - Structural Unemployment

Figure 1 is a graph representing structural unemployment. Given the loss of the car manufacturing industry there has been a fall in demand from D1 to D2 for car manufacturing labour in Australia. The consequences of this is there is a decrease in the quantity of workers employed from Q1 to Q2 accompanied with a decrease in wages (less will be paid per hour) from W1 to W2. Since these newly unemployed workers no longer have their skills demanded this fall in employment from Q1 to Q2 will be long term.

The impact structural unemployment has on individuals is it decreases household income and purchasing power and increases levels of stress and depression.

The impact structural unemployment has on society is it creates a downward pressure on wages for the employed and increases the rate of poverty and crime.

The impact structural unemployment has on the economy is vast. Increasing rates of structural unemployment will cause an overall decrease in spending from households and firms due to low confidence. Low confidence will be caused by the exit of powerful firms which will cause a loss of $21 billion in the economy leading to a decrease in overall wealth. More specifically, firms will cut spending on investment as they will also be unsure of future prices and demand, and therefore will be unsure of future revenue. The increasing unemployment rate will encourage society to consume less and save more contributing to a further decrease in household spending. This decreased spending will cause an overall decrease in aggregate demand. Aggregate demand is the total demand for a nations goods and services. The initial decrease in aggregate demand will lead to a series of decreased