Australian labour market flows over the business cycle

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Date: Dec. 2011
From: Australian Bulletin of Labour(Vol. 37, Issue 4)
Publisher: National Institute of Labour Studies Inc.
Document Type: Author abstract; Report
Length: 2,362 words
Lexile Measure: 1530L

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This paper analyses the behaviour of Australian labour market transition rates. Since the early 1980s, the job-finding rate has been significantly more volatile than the job-loss rate and it is strongly pro-cyclical. The economic downturns of the early 1980s and early 1990s were associated with up to a 10 percentage points decline in the average job-finding rate. In comparison, the recent economic downturn was associated with a less significant decline in the job-finding rate. During these periods, the job-loss rate has shown less significant volatility. The findings of this paper suggest that the job search activities of workers are potentially more relevant in explaining the volatility of labour market variables such as the unemployment rate, and whether emerging skill shortages can be addressed. Policies that assist job search and the skills development of workers are important, as is the intensity of workers' search activity.

1. Introduction

Increasing attention is given to the recent performance of the Australian labour market and to how much further the national unemployment rate will decline, as the economy recovers from an economic downturn associated with the global financial crisis (GFC). The re-emergence of skills shortages across a number of occupations, industries and regions is also relevant in the current environment.

The direction of the national unemployment rate and the degree to which skills shortages can be tackled partly depend on the efficiency of the labour market in 'matching' people looking for work with job vacancies (see Pissarides 2000; Mortensen and Pissarides 1994). The movement (or flows) of people between the labour market states of employed, unemployed or not in the labour force varies over the business cycle and can help to explain aggregate labour market outcomes (see, for the United States, Shimer 2005).

This paper analyses the behaviour of Australian labour market transition rates over the last 30 years using data for the flows of people between the three labour market states. A unique contribution of this paper is its examination of job-finding and job-loss rates over six identified economic downturns for Australia. Other related studies relevant to Australia include Panomareva and Sheen (2010), which examines transitions using a four-state model and finds that difficulties in finding employment--rather than job losses--are the key feature of recessions. Chindamo and Uren (2010) examine the ability of a search and matching model of labour market flows to explain the behaviour of Australian labour market variables over the business cycle. Similarly to Shimer (2005), they find that the model fails to identify substantial volatility among unemployment or vacancies. Dixon, Freebairn and Lim (2004) provide a framework for understanding the impact of labour market flows on the dynamics of the unemployment rate, including adjustment of labour market flow data to reflect stock estimates.

The present paper finds that since the early 1980s the job-finding rate is significantly pro-cyclical and that it has been much more volatile than the job-loss rate. The economic downturns in the early 1980s and early 1990s were associated with up to a 10 percentage points decline...

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Gale Document Number: GALE|A257126551