Advanced Search
MyIDEAS: Login to save this paper or follow this series

Labour Market Dynamics in Australia: What Drives Unemployment?

Contents:

Author Info

  • Marika Karanassou

    ()
    (Queen Mary, University of London)

  • Hector Sala

    ()
    (Universitat Autonoma de Barcelona)

Abstract

The debate in Australia on the (constant-output) elasticity of labour demand with respect to wages has wrongly sidelined the role of capital stock as a determinant of employment (Webster, 2003). As far back as 1991, Pissarides had argued that the influence of capital stock on the performance of the labour market is crucial but not well understood, a research area which is particularly relevant for Australia. This paper attempts to fill this void by estimating a multi-equation labour market model comprising labour demand, wage setting and labour supply equations. The model is used to examine the causes of the unemployment upturn in 1973-1983 and the subsequent decline in 1993-2006. Our results show that (i) the main determinants of the unemployment rise in the 1970s and early 1980s were wage-push factors, the two oil price shocks and the increase in interest rates, and (ii) the acceleration in capital accumulation was the crucial driving force of unemployment in the 1990s and 2000s. Furthermore, although the recent boom in the terms of trade is equally important, its downward effect on unemployment was partially reversed by the resulting decrease in net foreign demand.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://wwwdocs.fce.unsw.edu.au/economics/Research/WorkingPapers/2008_26.pdf
Download Restriction: no

Bibliographic Info

Paper provided by School of Economics, The University of New South Wales in its series Discussion Papers with number 2008-26.

as in new window
Length: 35 pages
Date of creation: Dec 2008
Date of revision:
Handle: RePEc:swe:wpaper:2008-26

Contact details of provider:
Postal: Australian School of Business Building, Sydney 2052
Phone: (+61)-2-9385-3380
Fax: +61)-2- 9313- 6337
Email:
Web page: http://www.economics.unsw.edu.au/
More information through EDIRC

Related research

Keywords: Labour market dynamics; capital accumulation; chain reaction theory;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
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.:
as in new window
  1. Gruen, David & Pagan, Adrian & Thompson, Christopher, 1999. "The Phillips curve in Australia," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 223-258, October.
  2. Karanassou, Marika & Sala, Hector, 2009. "Productivity Growth and the Phillips Curve: A Reassessment of the US Experience," IZA Discussion Papers 4299, Institute for the Study of Labor (IZA).
  3. Laurence Ball & N. Gregory Mankiw, 2002. "The NAIRU in Theory and Practice," Harvard Institute of Economic Research Working Papers 1963, Harvard - Institute of Economic Research.
  4. Karanassou, Marika & Sala, Hector & Snower, Dennis J., 2006. "Phillips Curves and Unemployment Dynamics: A Critique and a Holistic Perspective," IZA Discussion Papers 2265, Institute for the Study of Labor (IZA).
  5. Groenewold, Nicolaas & Hagger, A J, 1998. "The Natural Unemployment Rate in Australia since the Seventies," The Economic Record, The Economic Society of Australia, vol. 74(224), pages 24-35, March.
  6. Roberto Bande & Marika Karanassou, 2009. "Labour market flexibility and regional unemployment rate dynamics: Spain 1980-1995," Papers in Regional Science, Wiley Blackwell, vol. 88(1), pages 181-207, 03.
  7. Stephen Nickell & Luca Nunziata & Wolfgang Ochel, 2005. "Unemployment in the OECD Since the 1960s. What Do We Know?," Economic Journal, Royal Economic Society, vol. 115(500), pages 1-27, 01.
  8. Karanassou, Marika & Sala, Hector & Snower, Dennis J., 2002. "Unemployment in the European Union: A Dynamic Reappraisal," IZA Discussion Papers 531, Institute for the Study of Labor (IZA).
  9. Marika Karanassou & Dennis J. Snower, 2004. "Unemployment Invariance," German Economic Review, Verein für Socialpolitik, vol. 5(3), pages 297-317, 08.
  10. James Giesecke, 2008. "The Effects Of Recent Structural, Policy And External Shocks To The Australian Economy, 1996/97-2001/02," Australian Economic Papers, Wiley Blackwell, vol. 47(1), pages 15-37, 03.
  11. Marika Karanassou & Hector Sala & Dennis J. Snower, 2008. "The Evolution Of Inflation And Unemployment: Explaining The Roaring Nineties," Australian Economic Papers, Wiley Blackwell, vol. 47(4), pages 334-354, December.
  12. Pissarides, Christopher A, 1991. "Real Wages and Unemployment in Australia," Economica, London School of Economics and Political Science, vol. 58(229), pages 35-55, February.
  13. Steven Kennedy & Nghi Luu & Anthony Goldbloom, 2008. "Examining Full Employment in Australia Using the Phillips and Beveridge Curves," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 41(3), pages 286-297, 09.
  14. Olivier Blanchard & Justin Wolfers, 1999. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," NBER Working Papers 7282, National Bureau of Economic Research, Inc.
  15. Pesaran, M.H., 1996. "The Role of Economic Theory in Modelling the Long Run," Cambridge Working Papers in Economics 9612, Faculty of Economics, University of Cambridge.
  16. Agnese, Pablo & Sala, Hector, 2008. "The fading 1990s in Japan: Driving forces behind the unemployment upsurge," MPRA Paper 16501, University Library of Munich, Germany.
  17. Rowthorn, Robert, 1999. "Unemployment, Wage Bargaining and Capital-Labour Substitution," Cambridge Journal of Economics, Oxford University Press, vol. 23(4), pages 413-25, July.
  18. Lei Lei Song & John Freebairn, 2004. "ow Big Was the Effect of Budget Consolidation on the Australian Economy in the 1990s?," Melbourne Institute Working Paper Series wp2004n30, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  19. Jim Malley & Thomas Moutos, . "Capital Accumulation and Unemployment: A Tale of Two 'Continents'," Working Papers 9820, Business School - Economics, University of Glasgow.
  20. McDonald, John, 1999. "A Most Unnatural Unemployment Rate for Australia," The Economic Record, The Economic Society of Australia, vol. 75(229), pages 167-70, June.
  21. Debelle, Guy & Vickery, James, 1998. "Is the Phillips Curve a Curve? Some Evidence and Implications for Australia," The Economic Record, The Economic Society of Australia, vol. 74(227), pages 384-98, December.
  22. Lewis, Philip E. T. & Kirby, Michael G., 1988. "A new approach to modelling the effects of incomes policies," Economics Letters, Elsevier, vol. 28(1), pages 81-85.
  23. Dean Parham, 2004. "Sources of Australia's Productivity Revival," The Economic Record, The Economic Society of Australia, vol. 80(249), pages 239-257, 06.
  24. Mark Crosby & Nilss Olekalns, 1998. "Inflation, Unemployment and the NAIRU in Australia," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 31(2), pages 117-129.
  25. Heaton, Chris & Oslington, Paul, 2002. "The Contribution of Structural Shocks to Australian Unemployment," The Economic Record, The Economic Society of Australia, vol. 78(243), pages 433-42, December.
  26. Karanassou, Marika & Sala, Hector, 2008. "The Rise and Fall of Spanish Unemployment: A Chain Reaction Theory Perspective," IZA Discussion Papers 3712, Institute for the Study of Labor (IZA).
  27. Lilien, David M, 1982. "Sectoral Shifts and Cyclical Unemployment," Journal of Political Economy, University of Chicago Press, vol. 90(4), pages 777-93, August.
  28. Philip E.T. Lewis & Garry Macdonald, 2004. "Modelling Aggregate Demand for Labour: A Reply to Dowrick and Wells," The Economic Record, The Economic Society of Australia, vol. 80(251), pages 441-444, December.
  29. Robert Dixon & John Freebairn & G.C. Lim, 2005. "An Employment Equation for Australia," The Economic Record, The Economic Society of Australia, vol. 81(254), pages 204-214, 09.
  30. Madden, Gary & Savage, Scott J, 1998. "Sources of Australian Labour Productivity Change 1950-1994," The Economic Record, The Economic Society of Australia, vol. 74(227), pages 362-72, December.
  31. Groenewold, Nicolaas & Hagger, A J, 1999. "A 'Lilien' Natural Rate Series for Australia: A Reply," The Economic Record, The Economic Society of Australia, vol. 75(229), pages 173-76, June.
  32. Lye, J N & McDonald, I M & Sibly, H, 2001. "An Estimate of the Range of Equilibrium Rates of Unemployment for Australia," The Economic Record, The Economic Society of Australia, vol. 77(236), pages 35-50, March.
  33. Layard, Richard & Nickell, Stephen & Jackman, Richard, 1991. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780198284345, September.
  34. A. J. Hagger & Nicolaas Groenewold, 2003. "Time to Ditch the Natural Rate?," The Economic Record, The Economic Society of Australia, vol. 79(246), pages 324-335, 09.
  35. Elizabeth Webster, 2003. "The Effects of Wages on Aggregate Employment: A Brief Summary of Empirical Studies," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 36(1), pages 134-142.
  36. Lei Lei Song & John Freebairn, 2005. "Policies to Reduce Unemployment: Simulations with Treasury Macroeconomic Model," The Economic Record, The Economic Society of Australia, vol. 81(255), pages 351-366, December.
  37. Marika Karanassou & Hector Sala & Pablo F. Salvador, 2008. "Capital accumulation and unemployment: new insights on the Nordic experience," Cambridge Journal of Economics, Oxford University Press, vol. 32(6), pages 977-1001, November.
  38. Jenny N. Lye & Ian M. Mcdonald, 2006. "John Maynard Keynes Meets Milton Friedman And Edmond Phelps: The Range Versus The Natural Rate In Australia, 1965:4 To 2003:3," Australian Economic Papers, Wiley Blackwell, vol. 45(3), pages 227-240, 09.
  39. Snower, Dennis J. & Karanassou, Marika & Henry, Brian, 1999. "Adjustment Dynamics and the Natural Rate: An Account of UK Unemployment," IZA Discussion Papers 75, Institute for the Study of Labor (IZA).
  40. Groenewold, Nicolaas & Hagger, A J, 2000. "The Natural Rate of Unemployment in Australia: Estimates from a Structural VAR," Australian Economic Papers, Wiley Blackwell, vol. 39(2), pages 121-37, June.
  41. Lewis, Philip E T & MacDonald, Garry, 2002. "The Elasticity of Demand for Labour in Australia," The Economic Record, The Economic Society of Australia, vol. 78(240), pages 18-30, March.
  42. Steve Dowrick & Graeme Wells, 2004. "Modelling Aggregate Demand for Labour: A Critique of Lewis and MacDonald," The Economic Record, The Economic Society of Australia, vol. 80(251), pages 436-440, December.
  43. Lindbeck, Assar & Snower, Dennis J, 1994. "How Are Product Demand Changes Transmitted to the Labour Market?," Economic Journal, Royal Economic Society, vol. 104(423), pages 386-98, March.
  44. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
  45. Ian M. McDonald, 2008. "Full Employment: Is There Good Reason to Be Falling Short?," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 41(3), pages 283-285, 09.
  46. Bean, C R & Layard, P R G & Nickell, S J, 1986. "The Rise in Unemployment: A Multi-country Study," Economica, London School of Economics and Political Science, vol. 53(210(S)), pages S1-22, Supplemen.
  47. Philip Arestis & Michelle Baddeley & Malcolm Sawyer, 2007. "The Relationship Between Capital Stock, Unemployment And Wages In Nine Emu Countries," Bulletin of Economic Research, Wiley Blackwell, vol. 59(2), pages 125-148, 04.
  48. Nicolaas Groenewold, 2003. "Long-Run Shifts of the Beveridge Curve and the Frictional Unemployment Rate in Australia," Australian Journal of Labour Economics (AJLE), Bankwest Curtin Economics Centre (BCEC), Curtin Business School, vol. 6(1), pages 65-82, March.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Ivan Kitov & Oleg Kitov, 2011. "The Australian Phillips curve and more," Papers 1102.1851, arXiv.org.
  2. Bande, Roberto & Karanassou, Marika, 2010. "Spanish Regional Unemployment Revisited: The Role of Capital Accumulation," IZA Discussion Papers 5012, Institute for the Study of Labor (IZA).
  3. Karanassou, Marika & Sala, Hector, 2010. "The US inflation-unemployment trade-off revisited: New evidence for policy-making," Journal of Policy Modeling, Elsevier, vol. 32(6), pages 758-777, November.
  4. Marika Karanassou & Hector Sala, 2009. "The US Inflation-Unemployment Tradeoff: Methodological Issues and Further Evidence," Working Papers 647, Queen Mary, University of London, School of Economics and Finance.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:swe:wpaper:2008-26. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Gabriele Gratton).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.