RDP 9215: The Evolution of Employment and Unemployment in Australia 5. Evaluation and Summary

This paper has examined the evolution of Australian employment and unemployment in an attempt to answer two questions: why has the equilibrium rate of unemployment increased so much in the past two decades, and why does the unemployment rate rise so sharply during recessions, but fall only slowly in the ensuing period of economic growth?

The answer to the first question is that the economy was hit by a number of shocks during the mid 1970s, to which it was incapable of fully adjusting. These shocks led to declines in employment in some key sectors, especially manufacturing and construction, but the slack was not taken up by expansion elsewhere. The general slowdown in employment growth led to a sharp rise in unemployment duration, which has not since been reversed.

In answer to the second question, the sources of persistence appear to be different for women and men. The persistence of female unemployment is almost entirely supply driven: employment growth has been strong, but so has been the growth of the female labour force. The persistence of male unemployment appears to have been due, in large measure, to sectoral mismatch. Male unemployment was slow to fall over the 1980s because most of the employment growth occurred in sectors where women are dominant (such as community services); moreover, much of this growth was in part-time jobs, which again are mainly filled by women. Long term unemployment of men, as a result, has become a serious problem. For women, this problem is not so apparent, largely because women have a much greater tendency than men to leave the labour force rather than remain unemployed for extended periods of time. Consistent with these facts is a view of recessions as periods of accelerated structural change; for example, the general slowdown in activity in 1982–83 led a permanent decline in employment in most of the manufacturing sector, and the same may be true of the current recession.

Associated with these structural changes has been a large increase in the proportion of jobs that are held by part-time workers. This change has reinforced the rise in the equilibrium unemployment rate as part-time workers are much more likely, over any given period of time, to become unemployed than full-time workers. Although there has been no trend increase in the rate of inflow to unemployment from either full-time or part-time employment, the compositional shift towards part-time employment has increased the entry rate into unemployment for the economy as a whole.

We conclude by noting that further large falls in full-time employment, especially of men, have occurred in the current recession. Most ominously, as in 1982–83, the structural changes associated with this recession have led to a sharp fall in the probability of unemployed men finding a full-time job. If past experience is any guide, this fall will not be reversed during the recovery. It appears that persistently high levels of unemployment will be a feature of the Australian economy for many years to come.