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Unemployment and Skills in Australia

  • James Vickery

    (Reserve Bank of Australia)

In Australia, as in many other countries, labour-market groups with higher skill levels generally enjoy lower unemployment rates. This paper investigates why this might be the case, whether this is a recent phenomenon, and whether declining demand for unskilled labour, perhaps coupled with wage inflexibility, is an important explanation for the observed increase in the Australian unemployment rate over the past three decades. We find that relative demand shifts towards skilled labour are not an important determinant of the increase in overall unemployment. The shift in demand towards skilled labour has been matched by an equivalent shift in labour supply, leaving the structure of relative unemployment rates across skill groups fairly stable. Unemployment of both skilled and unskilled labour has increased, but this appears to be for reasons unrelated to relative demand shifts across skill groups. We also discuss possible reasons for the pervasively higher unemployment rates of less-skilled workers, drawing on data on individuals from the Survey of Employment and Unemployment Patterns (SEUP). We find that the high unskilled unemployment rate is associated with a higher exit probability from employment relative to skilled workers (a high ‘separation rate’), and a lower probability of finding employment from non-employment (a low ‘matching rate’).

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Paper provided by Reserve Bank of Australia in its series RBA Research Discussion Papers with number rdp1999-12.

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Date of creation: Dec 1999
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Handle: RePEc:rba:rbardp:rdp1999-12
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  1. 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.
  2. John E. DiNardo & Jorn-Steffen Pischke, 1996. "The Returns to Computer Use Revisited: Have Pencils Changed the Wage Structure Too?," NBER Working Papers 5606, National Bureau of Economic Research, Inc.
  3. Eli Berman & John Bound & Stephen Machin, 1997. "Implications of Skill-Biased Technological Change: International Evidence," NBER Working Papers 6166, National Bureau of Economic Research, Inc.
  4. McCormick, Barry, 1990. "A Theory of Signalling during Job Search, Employment Efficiency, and "Stigmatised" Jobs," Review of Economic Studies, Wiley Blackwell, vol. 57(2), pages 299-313, April.
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  7. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
  8. Christopher A. Pissarides, 1992. "Search Unemployment with on-the-job Search," CEP Discussion Papers dp0074, Centre for Economic Performance, LSE.
  9. Gordon de Brouwer, 1998. "Estimating Output Gaps," RBA Research Discussion Papers rdp9809, Reserve Bank of Australia.
  10. John Tyler & Richard J. Murnane & Frank Levy, 1995. "Are Lots of College Graduates Taking High School Jobs? A Reconsiderationof the Evidence," NBER Working Papers 5127, National Bureau of Economic Research, Inc.
  11. Richard B. Freeman, 1995. "Are Your Wages Set in Beijing?," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 15-32, Summer.
  12. Haskel, Jonathan & Slaughter, Matthew, 1998. "Does the Sector Bias of Skill-Biased Technical Change Explain Changing Wage Inequality?," CEPR Discussion Papers 1940, C.E.P.R. Discussion Papers.
  13. Guy Debelle & Troy Swann, 1998. "Stylised Facts of the Australian Labour Market," RBA Research Discussion Papers rdp9804, Reserve Bank of Australia.
  14. Mortensen, Dale T & Pissarides, Christopher A, 1994. "Job Creation and Job Destruction in the Theory of Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 61(3), pages 397-415, July.
  15. Akerlof, George A & Yellen, Janet L, 1990. "The Fair Wage-Effort Hypothesis and Unemployment," The Quarterly Journal of Economics, MIT Press, vol. 105(2), pages 255-83, May.
  16. Layard, Richard & Nickell, Stephen & Jackman, Richard, 1991. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780198284345, March.
  17. Foster, W F & Gregory, R G, 1982. "The Contribution of Employment Separation to Teenage Unemployment," The Economic Record, The Economic Society of Australia, vol. 58(161), pages 118-33, June.
  18. Adrian Wood, 1995. "How Trade Hurt Unskilled Workers," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 57-80, Summer.
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