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Where is full employment?

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  • Mcdonald, Ian Martin

Abstract

Unemployment in Australia is now at its lowest in over 30 years. This experience of low rates of unemployment has prompted a number of statements that the Australian economy is at or very close to full employment. However, even though unemployment is low in comparison with the previous 30 years, it is greater than the rates experienced in the 1950s and 1960s, during which the average was slightly below two per cent. Furthermore, the 4.4 per cent rate of unemployment in April 2007 included 84,000 who had been unemployed for more than a year. These doubts about whether the Australian economy is currently at full employment are supported by findings of a body of research reported in this paper. This research suggests that, given current policy settings on labour market regulation, microeconomic reform and welfare support, full employment may occur at a rate of unemployment as low as 2.5 per cent. The estimation of this low rate of unemployment is based on a model of a range of equilibrium rates of unemployment.

Suggested Citation

  • Mcdonald, Ian Martin, 2007. "Where is full employment?," MPRA Paper 5404, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:5404
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    References listed on IDEAS

    as
    1. Corden, W M, 1979. "Wages and Unemployment in Australia," The Economic Record, The Economic Society of Australia, vol. 55(148), pages 1-19, March.
    2. McDonald, Ian M & Sibly, Hugh, 2001. "How Monetary Policy Can Have Permanent Real Effects with Only Temporary Nominal Rigidity," Scottish Journal of Political Economy, Scottish Economic Society, vol. 48(5), pages 532-546, November.
    3. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-291, March.
    4. W. M. Corden, 1979. "Wages, Iflation and Unemployment," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 12(1), pages 69-70, April.
    5. Lixin Cai & Bob Gregory, 2005. "Unemployment Duration and Inflows onto the Disability Support Pension Program: Evidence from FaCS LDS Data," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 38(3), pages 233-252, September.
    6. Ian M. McDonald & Hugh Sibly, 2005. "The Diamond Of Macroeconomic Equilibria And Non‐Inflationary Expansion," Metroeconomica, Wiley Blackwell, vol. 56(3), pages 393-409, July.
    7. Ian M. McDonald, 1993. "Long‐Term Unemployment and Macroeconomic Policy," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 26(2), pages 31-34, April.
    8. Bhaskar, V, 1990. "Wage Relativities and the Natural Range of Unemployment," Economic Journal, Royal Economic Society, vol. 100(400), pages 60-66, Supplemen.
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    More about this item

    Keywords

    full employment; range of equilibria; Keynesian economics;
    All these keywords.

    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General

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