RDP 2002-04: Labour Market Adjustment in Regional Australia 2. Existing Australian Studies

In recent years, there have been several prominent studies that document regional economic conditions. These studies identify wide differences in regional population and employment growth, and show that Australia's fastest growing regions between 1986 and 1996 tended to be located on the coast, while those with the slowest growth tended to be inland, agricultural communities (ABARE 2001; Salt 2001; Productivity Commission 1999).^[3]

Most Australian studies of regional employment growth have, however, emphasised the extent of regional disparities in performance and tended to offer only a qualitative assessment of why it occurs.^[4] Of the few studies to model the explanators of regional variations in employment growth, Bradley and Gans (1998) found that faster employment growth in the 1980s was positively related to a town's initial size, its previous growth rate, industrial diversification, and its level of human capital. As the authors were interested in the determinants of city growth, their sample did not include towns with populations below ten thousand people, and so excluded those regions that tended to have the weakest employment growth over the period examined. Consequently, wider inferences about the causes of regional variations in performance cannot be drawn.

Attempts to formally model regional variations in Australian labour market outcomes have tended to focus on unemployment differentials, rather than employment growth. (See Borland (2000) for a review of this literature.) This work has emphasised the interaction between individual skills, the business cycle, and structural changes in the demand for labour, in the determination of unemployment rates. It identifies the geographic concentration of the low-skilled as the principal reason for the emergence of large regional unemployment differentials. (Key examples include Karmel, McHugh and Pawsey (1993), Hunter (1994) and Gregory and Hunter (1995).) Again, though, the studies have tended to examine unemployment variations in metropolitan areas and so preclude wider inferences about drivers of regional variations in unemployment. Furthermore, they do not incorporate an explicit role for geographic labour mobility in explanations of regional unemployment.^[5]

Inter-regional migration is, however, a feature of regional labour markets and may have an important bearing on unemployment rates. Despite the relevance of this adjustment mechanism in the explanation of labour market outcomes, the issue has been addressed in only a limited way, with most analysis focusing on the migration response at the state level where migration data are more readily available than for smaller areas. The Industry Commission (1993) argued that most of the adjustment of state labour markets to shocks occurred through changes in labour force participation rates, with migration playing only a small role. In contrast, Borland and Suen (1990) found that inter-state labour mobility acts to significantly reduce interstate differences in unemployment rates in the long run. Similarly, Debelle and Vickery (1998) demonstrated that migration was the most important channel of adjustment to shocks to unemployment in the Australian states, in line with the role for migration that is highlighted in the US literature.^[6]

More recently, ABARE (2001) has undertaken a detailed descriptive analysis of net-migration rates across Australian regions and identifies it as a significant phenomenon. It nominates a range of factors that are conducive to migration flows, but does not assess their impact on labour market outcomes. McGuire (2001) goes further and explores the role of migration in labour market outcomes within Queensland, but does not find the expected equilibrating role.^[7] His claims that regional migration has increased unemployment rate differentials are, however, based on some assumed labour market characteristics of migrants.^[8] And despite examining regional labour markets in some detail, a role for factors (other than employment growth) in regional migration was not quantified.

Thus there have been some substantive investigations of the nature of disparities in regional labour market performance in Australia, and some studies that model aspects of specific regional labour markets. However, there are few studies from which generalisations can be made about the principal causes of differences in labour market outcomes across regions, and the role that migration plays, at least at the sub-state level.

Footnotes

In fact, Salt (2001) uses demographic data published since the 1996 census to demonstrate that these trends have continued into 2000. [3]

Although, in contrast, the Productivity Commission (1999) employed modelling techniques to assess the implications of competition policy on employment in regions. [4]

Hunter (1994) proposes that significant barriers to mobility may exist between suburbs within cities, but does not have mobility as a variable in his empirical analysis. [5]

See, in particular, Blanchard and Katz (1992). [6]

He observes that, in Queensland, people have migrated from regions with both low employment opportunity and low unemployment rates to regions with both high employment opportunity but higher unemployment rates. [7]

Moreover, McGuire (2001) does not consider whether migration flows are disproportionate to the change in employment. Only disproportionate migration flows would generate widening unemployment rate differentials. [8]