The Evolution of Employment and Unemployment in Australia

Jerome Fahrer and Alexandra Heath
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Jerome Fahrer: Reserve Bank of Australia
Alexandra Heath: Reserve Bank of Australia

RBA Research Discussion Papers from Reserve Bank of Australia

Abstract: This paper poses two questions: why did the equilibrium rate of unemployment rise so much in the 1970s, and why does unemployment increase rapidly during recessions, but decrease so slowly in the subequent recovery, i.e. why is unemployment persistent? We find that equilibrium unemployment rose because of the economy’s inability to adjust to the adverse shocks of the time; employment contracted in some sectors but did not expand sufficiently in others. In answer to the second question, we find that the sources of persistence are different for men and women. Male unemployment has been persistent because, following a recession, employment is created in female dominated sectors, rather than the male dominated sectors which experienced the greatest decline in employment. Female unemployment has been persistent because the growth in the demand for female labour has been matched by the growth in its supply. Finally, we find that recessions appear to have a permanent effect on the sectoral composition of the economy; i.e., recessions are periods of accelerated structural change.

Date: 1992-12
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