Unemployment Rates and Starting Salaries: Are Australian Graduates at the Whim of the Wage Curve?

The existence of an inverse relationship between wage levels and regional unemployment rates, commonly referred to as the wage curve, is well established in the economic literature and was described by Card (1995) as being ‘close to an empirical law of economics’. This microeconomic wage–unemployment relationship, first identified by Blanchflower and Oswald (1994), has since been observed in more than 40 countries, including Australia. While this body of evidence seems to support the existence of a near-universal wage curve, a number of studies have demonstrated that wage elasticity differs between subgroups in the overall labour market, based on factors such as age, gender and educational attainment. Based on individual-level earnings data from the 2009 Graduate Destination Survey, this article presents an empirical investigation into the relationship between graduate starting wages and regional unemployment rates in order to determine whether a wage curve exists for recent higher education graduates commencing their first full-time employment in the Australian labour market. While the main purpose of this article is to examine the unemployment elasticity of pay for recent higher education graduates, the results on the control variables (including enrolment, personal and employment characteristics) are also examined to provide further insights into the factors that serve as determinants of their labour market outcomes.