Bulletin – September Quarter 2014 Unemployment and Spare Capacity in the Labour Market Abstract

The unemployment rate provides an important gauge of spare capacity in the labour market and the economy more generally. However, other factors also affect unemployment, which complicates its interpretation when informing monetary policy. Statistical methods can be used to estimate the extent to which the unemployment rate reflects spare capacity versus more enduring structural factors. This involves estimating the NAIRU. Information can also be gleaned from the composition of unemployment, as jobseekers with certain characteristics may be more indicative of spare capacity than others. These approaches suggest that spare capacity in the labour market has increased over the past few years but remains well below that which prevailed over much of the 1990s.

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