Unemployment and the Australian Labour Market

While in recent years the unemployment rate has fallen from its peak of over 11 per cent in the early 1990s, the current rate of unemployment – at just over 8 per cent, about the average for the past fifteen years – is still of concern for both economic and social reasons. From an economic perspective, unemployment represents the underutilisation of one of the economy's main resources, labour. Socially, unemployment is associated with an array of problems, not least a lower standard of living and lower self-esteem for the unemployed. The higher rate of unemployment since the mid 1970s is not a problem unique to Australia. A large number of OECD countries have experienced a similar rise. There have, however, been some exceptions. Most notably, the unemployment rate in the United States has fluctuated around a relatively constant level for over three decades. Whereas in the 1960s and early 1970s the structure of the labour market in the United States was sometimes criticised for delivering higher unemployment rates than other OECD countries, today it is often held up as the example to which other countries should aspire. On the other hand, the relatively low unemployment rate in the United States has been associated, in the past two decades, with widening wage inequality. The contrast between continental Europe and the United States is often seen as illustrating a trade-off between a lower unemployment rate and a more unequal earnings distribution. An important consideration in such a trade-off is the interaction of the labour market with the social security system. A wider distribution of labour income could be mitigated by an appropriately targeted tax and welfare system that sought to avoid high effective marginal rates of taxation that might act to discourage individuals from seeking or accepting employment opportunities. The papers in the volume were commissioned by the Bank and the Centre for Economic Policy Research at the Australian National University to consider the issue of unemployment in Australia and to contribute to the debate about policies to reduce unemployment. The papers covered three main issues: • The labour market experiences of other OECD countries have been diverse over the past three decades, as evidenced by the range of unemployment outcomes. These varied experiences can provide lessons for Australia about the impact on