Research Discussion Paper – RDP 7802 Unemployment: An Econometric Dissection


This paper presents a model of the Australian labour market disaggregated into adults and juniors, males and females. The model is designed to explain the behaviour of employment, unemployment and earnings from 1966 to 1976, given real product and award wages for each group. The main conclusion is that the large wage rises of the 1970s have been a major cause of the present levels of unemployment. Estimates of the extent to which increased wages and depressed real product have contributed to unemployment are given, but the current model is unable to explore the relationships between wages and real output, and the estimates are thus of the proximate influence of the variables. A broader analysis will be made when this model of the labour market is put into the RBA76 model.

An earlier version of this paper was given at the University of Melbourne and at the Seventh Conference of Economists. Helpful comments have been made by many people, and in particular Max Corden, Chris Higgins, Neil Johnston, Bill Norton, Don Stammer and Graeme Thompson. John Helliwell and Michael Parkin made useful suggestions on the project during brief visits to the Bank in 1977, and technical assistance was given by Belinda Blaxland, Annette Cunningham, Jan Eberhardt, John Taylor and Robert Trevor. The analysis and conclusions are however not necessarily shared by any of the above or by our employer.