A Short‐Run Employment Function for Australia: 1911–12 to 1938–39

David J. Smyth

The Economic Record, 1982, vol. 58, issue 4, 375-378

Abstract: This paper develops a short‐run employment function model in which the speed of adjustment is positively related to the level of unemployment. The model is fitted to aggregate Australian data for the period 1911–12 to 1938–39, a period which includes the high unemployment years of the 1930s. Full information maximum‐likelihood estimation procedures are used and a log‐likelihood ratio test indicates that the variable speed of adjustment model is to be preferred to a fixed adjustment speed model. The speed of adjustment was quite sensitive to the unemployment rate. The policy conclusion of the paper is that if Australian unemployment rates rise to levels that are unprecedented in the post‐war period, firms may shake out surplus labour at a surprisingly fast rate.

Date: 1982
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https://doi.org/10.1111/j.1475-4932.1982.tb00388.x

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