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Labour Market Policies and Long‐term Unemployment in a Flow Model of the Australian Labour Market

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  • Ric D. Herbert
  • Gareth D. Leeves

Abstract

This paper develops a general equilibrium job matching model, which is used to assess the impact of active labour market policies, reductions in unemployment benefits and reductions in worker bargaining power on long‐term unemployment and other key macro variables. The model is calibrated using Australian data. Simulation experiments are conducted through impulse response analysis. The simulations suggest that active labour market programs (ALMPs) targeted at the long‐term unemployed have a small net impact and produce adverse spillover effects on short‐term unemployment. Reducing the level of unemployment benefits relative to wages and worker bargaining power have more substantial effects on total and long‐term unemployment and none of the spillover effects of ALMPs.

Suggested Citation

  • Ric D. Herbert & Gareth D. Leeves, 2003. "Labour Market Policies and Long‐term Unemployment in a Flow Model of the Australian Labour Market," Australian Economic Papers, Wiley Blackwell, vol. 42(2), pages 197-213, June.
    • Handle: RePEc:bla:ausecp:v:42:y:2003:i:2:p:197-213
    DOI: 10.1111/1467-8454.00195
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    2. Van der Linden, Bruno & Dor, Eric, 2001. "Labor Market Policies and Equilibrium Employment : Theory and Application for Belgium," LIDAM Discussion Papers IRES 2001005, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    3. Lei Lei Song & John Freebairn & Don Harding, 2001. "Policy Options to Reduce Unemployment: TRYM Simulations," Melbourne Institute Working Paper Series wp2001n19, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    4. A.M. Dockery & Elizabeth Webster, 2002. "Long-Term Unemployment and Work Deprived individuals: issues and Policies," Australian Journal of Labour Economics (AJLE), Bankwest Curtin Economics Centre (BCEC), Curtin Business School, vol. 5(2), pages 175-193, June.
    5. John J. McCall, 1982. "The Economics of Information and Uncertainty," NBER Books, National Bureau of Economic Research, Inc, number mcca82-1, February.
    6. James Vickery, 1999. "Unemployment and Skills in Australia," RBA Research Discussion Papers rdp1999-12, Reserve Bank of Australia.
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    Cited by:

    1. Phillip Chindamo & Lawrence Uren, 2010. "Vacancies and Unemployment in Australia," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 43(2), pages 136-152, June.

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