RDP 1978-02: Unemployment: An Econometric Dissection 4. Concluding Comments

The current results suggest that the large wage rises of the 1970s were a major cause of the high levels of unemployment. By raising labour costs, these wage rises reduced the demand for labour. There is also evidence that the wage rises stimulated growth of the labour supply despite the discouraged worker effects of the rising unemployment.

The proportion of the unemployment which could be attributed to the wage rises would be higher if some part of the reduced real output was shown to be due to the wage rises. There is some evidence for this in the simulation study of Jonson and Taylor (1977), although other factors, including the world-wide slump in economic activity, helped to cause the Australian recessior Attempts to carry further the econometric dissection of the causes of our unemployment will require a broader analysis, in which the model of the labour market is added to a model of the rest of the economy.