RDP 2002-04: Labour Market Adjustment in Regional Australia 6. Conclusion

Employment growth varied considerably across Australia's regions between the census periods of 1986 and 1996. In fact, in many regions the level of employment actually fell while in others rates of employment growth significantly exceeded the national average. But, contrary to the usual experience of national or state economies, stronger employment growth did not always translate into lower unemployment. Similarly, regional job losses did not always translate into higher unemployment rates. The final unemployment rate was greatly influenced by the strength of regional migration.

Inter-regional migration has emerged as an important channel through which regions adjust to shocks. The relative strength of migration flows does, however, vary considerably across regions, such that regional labour market outcomes can be disparate. This has both distributional and efficiency implications. Consequently, understanding the reasons for divergent regional labour market outcomes is an important public policy issue. As a first step, we have attempted to identify the characteristics of regions that are prone to particular labour market outcomes.

A number of characteristics were found to be associated with aspects of labour market performance. However, a recurring theme is that proximity to markets, amenity, and diversity of industrial structure (especially the presence of service industries) are central to a region's ability to generate jobs and to attract migrants. Significantly, our results also suggest that once the dominant effect of employment growth is controlled for, inter-regional migration does act to reduce unemployment differentials. However, because unemployment rate differentials are just one of the factors that prospective migrants respond to, they may persist, and even widen in some circumstances.

These ideas are far from new, and have been advanced as reasons for divergent regional economic performance in Australia in recent decades. But given the limited quantitative evidence of their role, the debate on regional economic performance is hopefully advanced by establishing the probability that distinguishing characteristics of a region can be associated with given labour market outcomes.

Finally, although the focus of this paper has been on the relationship between initial characteristics and subsequent labour market adjustment, it would also be of interest to determine how shocks hitting regions during our sample period affected regional labour markets. In particular, an attempt to disentangle long-run trends from cyclical trends would be of value. Of course, such a task is difficult when the census only presents us with snapshots in time every five years. However, data from the 2001 census will allow researchers to examine a period that encompasses the early 1990s recession and a decade-long expansion. Of interest will be whether the characteristics identified in this paper have continued to influence regional labour markets over the past five years.