Research Discussion Paper – RDP 02 A Short Term Employment Function for Australia Introduction

The aim of this paper is to develop an equation to explain quarterly movements in employment in Australia. Particular attention is given to lags in the response of employment to its determinants.

The plan of the paper is as follows. In section 2, the various approaches used to derive the short term desired or optimal level of employment are examined. This survey suggests a few alternative hypotheses about the determinants of desired employment. But employment will take time to adjust towards desired employment after changes in the determinants of the latter. Some comments on the adjustment process and methods for measuring it are made in section 3. In section 4 the variables in the regressions are defined and sources of the data are given. The results of estimating alternative employment equations with Australian quarterly seasonally unadjusted data for the period 1959(1) to 1967(4) are reported and discussed in section 5. Finally, in section 6, some tentative conclusions are suggested. An appendix examines the relationship between unemployment and output.