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Modelling Regional Labour Market Adjustment in New Zealand

  • Wai Kin Choy
  • David C Mare
  • Peter Mawson


    (Reserve Bank of New Zealand (Wai Kin Choy)
    Motu Economic and Public Policy Research Trust (Mare)
    The Treasury (Mawson))

This paper adopts a vector autoregressive (VAR) approach to analyse the labour market adjustment mechanisms for 12 New Zealand regions over the period 1985 to 2001. It examines the effects of a region-specific shock to employment on itself, the unemployment rate, the participation rate, and the wage rate. The role of migration as a channel of regional labour market adjustment is also inferred. We find that adjustment occurs predominantly through inter-regional migration although the unemployment and participation rates also play a role. Wages, on the other hand, account for very little adjustment. The importance of inter-regional migration in New Zealand matches the results found in Sweden, but stands in contrast to the picture in many European countries. Migration appears to be a more dominant adjustment channel compared to the US and Australian cases. However, this has to be placed into context – New Zealand regions are much smaller in terms of population size.

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Paper provided by New Zealand Treasury in its series Treasury Working Paper Series with number 02/01.

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Length: 81 pages
Date of creation: Mar 2002
Date of revision:
Handle: RePEc:nzt:nztwps:02/01
Contact details of provider: Postal: New Zealand Treasury, PO Box 3724, Wellington, New Zealand
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  1. Pasaran, M.H. & Im, K.S. & Shin, Y., 1995. "Testing for Unit Roots in Heterogeneous Panels," Cambridge Working Papers in Economics 9526, Faculty of Economics, University of Cambridge.
  2. Andrew Coleman, 1999. "Economic Integration and Monetary Union," Treasury Working Paper Series 99/06, New Zealand Treasury.
  3. Timothy J. Bartik, 1991. "Who Benefits from State and Local Economic Development Policies?," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number wbsle, April.
  4. Antonio Spilimbergo & Eswar Prasad & Paolo Mauro, 1999. "Perspectives on Regional Unemployment in Europe," IMF Occasional Papers 177, International Monetary Fund.
  5. Sharon McCaw & C John McDermott, 2000. "How New Zealand adjusts to macroeconomic shocks: implications for joining a currency area," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 63, March.
  6. Fredriksson, P., 1995. "The Dynamics of Regional Labour Markets and Active Labour Market Policy: Swedish Evidence," Papers 1995-20, Uppsala - Working Paper Series.
  7. Olivier Jean Blanchard & Lawrence F. Katz, 1992. "Regional Evolutions," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 23(1), pages 1-76.
  8. Hayden Glass & Wai Kin Choy, 2001. "Brain Drain or Brain Exchange?," Treasury Working Paper Series 01/22, New Zealand Treasury.
  9. Decressin, Jorg & Fatas, Antonio, 1995. "Regional labor market dynamics in Europe," European Economic Review, Elsevier, vol. 39(9), pages 1627-1655, December.
  10. David C Maré & Wai Kin Choy, 2001. "Regional Labour Market Adjustment and the Movements of People: A Review," Treasury Working Paper Series 01/08, New Zealand Treasury.
  11. Timothy J. Bartik, 2003. "Local Economic Development Policies," Upjohn Working Papers and Journal Articles 03-91, W.E. Upjohn Institute for Employment Research.
  12. Guy Debelle & James Vickery, 1998. "Labour Market Adjustment: Evidence on Interstate Labour Mobility," RBA Research Discussion Papers rdp9801, Reserve Bank of Australia.
  13. Runkle, David E, 1987. "Vector Autoregressions and Reality," Journal of Business & Economic Statistics, American Statistical Association, vol. 5(4), pages 437-42, October.
  14. Papps, Kerry L. & Newell, James O., 2002. "Identifying Functional Labour Market Areas in New Zealand: A Reconnaissance Study Using Travel-to-Work Data," IZA Discussion Papers 443, Institute for the Study of Labor (IZA).
  15. David E. Runkle, 1987. "Vector autoregressions and reality," Staff Report 107, Federal Reserve Bank of Minneapolis.
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