Academic journal article The Economic and Labour Relations Review : ELRR

Reductions in Aggregate Unemployment as 'A Free Lunch'

Academic journal article The Economic and Labour Relations Review : ELRR

Reductions in Aggregate Unemployment as 'A Free Lunch'

Article excerpt

Introduction

This paper looks at the effects of changes in the age composition of the labour force on aggregate male and female unemployment rates. Given that there have been persistent changes in the proportional representation of various age groups in the labour force and given also the existence of age related differences in the unemployment rate, it is reasonable to conjecture that changes in the age composition of the (population and the) labour force have had a discernable impact on the aggregate unemployment rate. To explore this issue we need to decompose movements in the aggregate unemployment rates into a component which reflects changes in the weighting of different age groups and a component which reflects changes due to variations in the unemployment rate for each age group. There are various ways in which this could be done. In this paper a purely statistical (shift-share) decomposition is used to identify the two components. We begin by looking at what the evidence tells us about the evolution of both unemployment rates and the age composition of the labour force for males and females in Australia since 1978.

Recent History of the Aggregate Unemployment Rate for Males and Females

Figures 1a and 1b show the behaviour of the aggregate male and female unemployment rates on a quarterly basis over the period 1978:2-2002:1. (1) With respect to males we notice that the peak unemployment rate is higher in the second of the two recessions and that the trough unemployment rate was lower prior to the start of the first recession than it was prior to the start of the second. Indeed, the general impression given is consistent with a rising trend unemployment rate. With respect to females we notice that the peak unemployment rate is lower in the second of the two recessions and that the trough unemployment rate was lower prior to the start of the second recession than it was prior to the start of the first. Unlike the case for males, the general impression here is consistent with a falling trend unemployment rate.

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Figures 2a and 2b show unemployment rates by broad age groups (2) while Figures 3 a and 3b show the proportion of the labour force in the various age groups over time. In Figure 2 we see that the unemployment rate for both males and females aged 15-24 years is in every period the highest of all the age groups. (Notice this implies that if the share of that age group in the labour force were to fall, the aggregate unemployment rate must necessarily fall--more on this shortly.) Another striking feature of the information given to us in Figure 2a is that if we compare unemployment rates for each age group at the peak of the two recessions we find that the peak level for the 15-24 age group is about the same but for males aged 25-54 and 55-64 the peak level in the second recession is much higher than for the first. In Figure 2b, which gives data for females, we see that the peak level for the 15-24 and 25-54 age groups (together they make up around 92% of the female labour force) is about the same for both recessions although, as we have already seen, the aggregate female unemployment rate was lower in the second than the first. By itself this suggests that we are on the right track in thinking that changes in age composition of the labour force are playing an important role in determining movements of the aggregate unemployment rate over time.

Figures 3 a and 3b show the proportions of the total male and female labour force over the age of 15 taken up by different age groups over the period 1978:2-2002:1. The proportion of both males and females in the prime working age group (25-54) was rising until 1997/98 but has been falling since then. Also evident is that there has been a persistent fall in the proportion of the male and female labour force in the age group 1524 over the whole of the period since 1980/81 (although the rate of decline has been slowing since the mid-nineties--more on this in a later section of the paper) and that the proportions of the male and female labour force in the age groups 55-64 and 65 plus have been rising, at least in the latter part of the period under consideration. …

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