Academic journal article The Economic and Labour Relations Review : ELRR

Labour Market Gross Flows and Transition Rates 1980-1992

Academic journal article The Economic and Labour Relations Review : ELRR

Labour Market Gross Flows and Transition Rates 1980-1992

Article excerpt

1. Introduction

By July 1992, the end of the period covered by this study, the unemployment rate stood at 11 per cent. This historically high rate and the slow reduction in unemployment after recessions in 1982 and 1990 lead to much comment on the poor performance of the Australian labour market (Sloan and Wooden 1992, Fahrer and Heath 1992). However, it would be misleading to view the labour market as inactive or stagnant when unemployment is high. For instance, from June to July 1992, according to ABS gross flow statistics, 84,600 moved from employment to unemployment (EU flow) whilst 101,400 people moved from unemployment to employment (UE flow). Yet the growth in unemployment over the same period was 10,700. Clearly, flows into and out of unemployment are far greater than changes in the stock. In fact, labour market activity, as reflected in labour market gross flows from EU and UE, increases during periods of recession compared to other phases of the business cycle. The former result appears a logical outcome of recessions, but the latter is more surprising and counterintuitive. An investigation of the constituents and source of this countercyclical UE flow is the major motivation for this paper.

Counter-cyclical UE and EU flows have been reported by many studies, including Blanchard and Diamond (1990) for the US, Jones (1993) for Canada, Burda and Wyplosz (1994) for European countries and Leeves (1995) for Australia. Different explanations for the counter intuitive result of rising UE flows during a downturn have been advanced. Saint-Paul (1992) puts forward an argument based on a dual labour market framework. Firms hire more secondary workers in a recession to increase flexibility in their workforce and secondary workers constitute a greater proportion of hiring from unemployment. A proportion of primary workers are recruited from secondary workers already in the workforce. All secondary workers are recruited from the unemployed. Burda and Wyplosz (1994) offer an explanation based on the desire of firms to hire from the expanded unemployment pool in a recession so as to improve the 'quality' of their workforce from the greater range of potential applicants. Recessions are periods when the opportunity cost for such activity is at its lowest.

Most studies of gross flow cyclical behaviour have disaggregated flows by sex (Blanchard and Diamond 1990, Jones 1993, Burda and Wyplosz 1994, Leeves 1995 and Antolin 1995) and found some variation in the cyclical behaviour of male and female flows. Though Blanchard and Diamond using US data and simulation methods found no major difference in male and female UE flow response to an adverse aggregate shock. This study will extend previous analysis of cyclical behaviour by using a further disaggregation between full-time and part-time employment to gain a more detailed picture of the source and extent of countercyclical behaviour. There have been previous accounts of disaggregated Australian gross flows (Fahrer and Heath 1992) and although the present paper is essentially descriptive, the empirical work that follows provides a more detailed analysis of cyclical and secular effects than in previous research.

The cyclical properties for the disaggregated UE and EU flows over the period 1980-1992 found in this study are as follows: male flows from unemployment to full-time employment and full-time employment to unemployment demonstrate significant countercyclical effects; female flows from unemployment to full-time employment and full-time employment to unemployment indicate no cyclical effects; both male and female flows from unemployment to part-time employment and part-time employment to unemployment are significantly countercyclical, with female flows showing less cyclical sensitivity than males. These results indicate that it is worthwhile distinguishing flows by full-time and part-time work and by gender as this reveals additional information about the pattern of cyclical behaviour. …

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