Unemployment traps and age-earnings profiles: estimates for Australia in 2000

Bruce Chapman and John Quiggin

Australian Journal of Labour Economics (AJLE), 2000, vol. 4, issue 3, 174-191

Abstract: The relative costs of taking employment or receiving welfare are usually understood through comparisons of a person’s social security entitlements and their wage alternative, known as replacement rates. In some situations it appears that the additional income from working is negligible, and this is said to constitute an ‘unemployment trap’. However, conventional replacement rates ignore the fact that age-earnings profiles slope upward through the acquisition of labour market experience. We offer a dynamic reinterpretation and compare alternative calculations for Australia in 2000. The usual and incorrect approach exaggerates significantly the likelihood of unemployment traps, but the presence of children and the age of the decision-maker mitigate this considerably, and can even reverse, this assessment.

Keywords: Unemployment Insurance; Severance Pay; Plant Closings Unemployment; Models, Duration, Incidence, and Job Search (search for similar items in EconPapers)
JEL-codes: J64 J65 (search for similar items in EconPapers)
Date: 2000
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Persistent link: https://EconPapers.repec.org/RePEc:ozl:journl:v:4:y:2001:i:3:p:174-191

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