RDP 9305: The Unemployment/Vacancy Relationship in Australia 5. Summary and Conclusions

One of the most important features of the Australian economy in the past two decades has been the structural deterioration of labour market performance, reflected in both an increase in the average rate of unemployment and an outward shift in the Beveridge Curve. This paper has attempted to uncover some of the causes for this structural deterioration, in terms of the factors affecting the UV relationship. In common with other research in this area, we have found that the Beveridge Curve shifted out around 1974, consistent with an increase in the equilibrium rate of unemployment that is generally agreed to have occurred around that time.

However the main focus of the paper is our estimates of the equilibrium Beveridge Curve for the 1980s. Simple analysis of the vacancy rate and the unemployment rate would lead to the conclusion that the Beveridge Curve was stable during the 1980s. However, by using labour force gross flows data to estimate the equilibrium relationships, we have been able to identify offsetting influences acting upon the Beveridge Curve. We have found that the most important determinant of the equilibrium UV relationship is the degree of search effectiveness of the unemployed. Over the 1980s, the increased incidence of long term unemployment led to a decline in overall effectiveness, in turn causing the Beveridge Curve to shift further outwards. Offsetting this influence during this time was the declining labour force participation of men, and the very large increases in female employment.