RDP 9801: Labour Market Adjustment: Evidence on Interstate Labour Mobility 1. Introduction

In general, state unemployment rates tend to move quite closely with the national unemployment rate. Nevertheless, in June 1997, the unemployment rate in Tasmania was 10.7 per cent while in Western Australia it was 7.0 per cent, compared with the national unemployment rate of 8.5 per cent. With an efficient labour market, one might not expect such disparities in unemployment rates across different regions of the country to persist.

One suggestion for reducing the rate of unemployment in Australia is increased geographic mobility of labour. If workers were more willing or able to move to different parts of the country, the component of the structural rate of unemployment attributable to geographic mismatch of jobs and workers would decline. Differing degrees of labour mobility is sometimes also advanced as a possible explanation for the relatively low rate of unemployment in the United States compared to Europe.

In this paper, we investigate the role of labour migration as an adjustment mechanism for reducing differentials in labour market conditions between states.^[1] In particular, our aim is to discover (a) the extent to which migration of workers acts to reduce unemployment differentials between states, and (b) the speed with which migration operates as a channel of adjustment. We examine various indicators of the degree of labour mobility in Australia, and employ an empirical model used previously in the United States and in Europe to examine the contribution that interstate migration has made to mitigating the employment effects of state-specific shocks.

The evidence in this paper suggests that migration does play an important role in equalising labour market conditions between states, although the process takes some time. Despite this, there is some evidence of permanent (or very persistent) differences in unemployment rates across states. This is particularly so for Tasmania and South Australia, where the unemployment rate has generally been above the national average over the past two decades.

In the next section, we discuss the theoretical process of adjustment to labour market disequilibria across the states, and summarise the existing evidence on labour mobility both in Australia and overseas. In Section 3, we present some stylised facts of the state labour markets in Australia. In Section 4, we present results of some tests of the role of labour mobility in labour market adjustment. To examine the dynamics of labour migration, in Section 5 we estimate a model similar to that used by Blanchard and Katz (1992) in their study of labour mobility in the United States. We compare our findings to the results of that study, and to the Industry Commission (1993) who use a similar methodology to examine the issue. Section 6 concludes.

Footnote

Here and throughout the paper, ‘state’ encompasses the two territories in addition to the six states. [1]