Time-varying equilibrium rates of unemployment: an analysis with Australian data
AbstractWe explore a new approach to understanding the evolution of the unemployment rate in Australia. Specifically, we use gross worker flows data to study the consequences of assuming that there is no unique equilibrium rate of unemployment but rather a continuum of stochastic equilibrium rates which reflect the movement of the unemployment entry and exit rates over time. The stochastic equilibrium unemployment rate and the observed unemployment rate are very closely related and we explore the reasons why this is so. We then examine the short-run dynamics of the entry and exit rates (specifically, the impulse response functions) and the impact of shocks to the entry and exit rates on the unemployment rate. We find that shocks to the entry rate have been more important than shocks to the exit rate in bringing about variations in the unemployment rate over our sample period. Finally, we present a new way to disentangle the effects of the business cycle from the effects of structural shifts on the (equilibrium) unemployment rate. It would appear that there was a once and for all downward shift in the equilibrium rate(s) of unemployment in Australia in the early 1990s, which likely reflects the introduction of a more generous system of disability pension benefits.
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Bibliographic InfoArticle provided by Bankwest Curtin Economics Centre (BCEC), Curtin Business School in its journal Australian Journal of Labour Economics.
Volume (Year): 10 (2007)
Issue (Month): 4 (December)
Contact details of provider:
Postal: GPO Box U1987, Perth WA 6845
Web page: http://business.curtin.edu.au/research/publications/journals/ajle/
More information through EDIRC
Unemployment Models; Duration; Incidence; and Job Search; Employment; Unemployment; Wages; Intergenerational Income Distribution Business Fluctuations; Cycles;
Other versions of this item:
- Robert Dixon & John Freebairn & G. C. Lim, 2006. "Time-Varying Equilibrium Rates of Unemployment: An Analysis with Australian Data," Melbourne Institute Working Paper Series wp2006n11, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
- J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
- E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Lixin Cai & Robert G. Gregory, 2004. "The Labour Market Conditions, Applications and Grants of disability support Pension (DSP) in Australia," Australian Journal of Labour Economics (AJLE), Bankwest Curtin Economics Centre (BCEC), Curtin Business School, vol. 7(3), pages 374-394, September.
- Balakrishnan, Ravi & Michelacci, Claudio, 2001.
"Unemployment dynamics across OECD countries,"
European Economic Review,
Elsevier, vol. 45(1), pages 135-165, January.
- Dixon, R., 2001. "Australian Labour Force Data: How Representative is the 'Population Represented by the Matched Sample'?," Department of Economics - Working Papers Series 772, The University of Melbourne.
- Simon Burgess & Hélène Turon, 2005. "Unemployment dynamics in Britain," Economic Journal, Royal Economic Society, vol. 115(503), pages 423-448, 04.
- Robert E. Hall, 2003. "Modern Theory of Unemployment Fluctuations: Empirics and Policy Applications," American Economic Review, American Economic Association, vol. 93(2), pages 145-150, May.
- Robert E. Hall, 2005. "Job Loss, Job Finding, and Unemployment in the U.S. Economy Over the Past Fifty Years," NBER Working Papers 11678, National Bureau of Economic Research, Inc.
- G.C. Lim & Robert Dixon & Sarantis Tsiaplias, 2009.
"Phillips Curve and the Equilibrium Unemployment Rate,"
The Economic Record,
The Economic Society of Australia, vol. 85(271), pages 371-382, December.
- G.C. Lim & R. Dixon & S. Tsiaplias, 2009. "Phillips Curve and the Equalibrium Unemployment Rate," Department of Economics - Working Papers Series 1070, The University of Melbourne.
- Robert Dixon & John Freebairn & Emayenesh Seyoum-Tegegn, 2008. "State & Territory Beveridge Curvesand the National Equilibrium Unemployment Rate," Department of Economics - Working Papers Series 1033, The University of Melbourne.
- Chew Lian Chua & Robert Dixon & G. C. Lim, 2007. "What Drives Worker Flows?," Melbourne Institute Working Paper Series wp2007n34, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
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