Cyclical Labour Market Adjustment in Australia

Since the late 1990s, a larger share of labour market adjustment in Australia has come about via changes in average hours worked, as opposed to changes in the number of people employed. Much of this is likely to reflect that the economic downturns in the 2000s were relatively short and shallow compared to the recessions in the 1980s and 1990s. Had these later downturns been more severe, firms may have needed to shed more workers. It is also possible that labour market reforms over recent decades have provided firms with more scope to reduce labour costs by reducing working hours and wage growth rather than by reducing headcount. Consistent with these explanations, an important driver of cyclical adjustments in average hours during downturns looks to have been reductions in hours worked for employees who remained in the same job, as opposed to changes in the composition of aggregate employment.