Difficulty of data

Another well known VCE Economics site looked at supply side factors recently. The article pointed out that the participation rate (the percentage of those of working age who are employed or unemployed) had fallen recently. In June 2008 it was 65.7% and is now 65.2%.

If the participation rate falls then there is a smaller workforce available to Australia, everything else remaining the same, and so the potential output of the economy is less.

However the key point really has to be, other things remaining the same. They didn't and so to suggest that the tiny variation in the participation rate in the last four years has restricted supply side growth is ludicrous.

What else has happened in the labour market in the last year?

Participation rate has fallen from 65.5% to 65.2%.
The labour force has grown by 95,000.
Part time employment has fallen by 6,000
Full time employment has risen by 66,000.

When looking at all of the data it must be concluded that the labour market has not restricted growth at all, indeed it has allowed a rise in productive potential. The implication of the above data, combined implies that the Long Run Aggregate Supply Curve has shifted to the right in the last year.

The lesson? Look at the whole picture and don't read trends into tiny fluctuations in the figures. The participation rate is basically stable over the period the last four years, the time period VCE Economics needs you to know about. But the labour force has grown and unemployment has fluctuated around 5% with not much variation meaning that there are not severe supply-side constraints on the Australian economy.