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A Framework For Understanding Changes In The Unemployment Rate In A Flows Context: An Examination Net Flows In The Australian Labour Market

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  • Robert Dixon
  • John Freebairn
  • G. C. Lim

Abstract

In this paper we develop a framework which is appropriate for the systematic investigation of the relationship between net (and gross) flows between different labour market states and movements in the unemployment rate. We use that framework to investigate the behaviour of net flows of persons between employment, unemployment and not in the labour force in Australia between 1979-2003 and the relationship of these flows to changes in the unemployment rate over that period. We find that: flows from unemployment to employment exceed flows from employment to unemployment and that this is the case even in recessions; flows from employment to not in the labour force exceed flows from not in the labour force to employment and that this is the case even in booms, and; flows from not in the labour force to unemployment exceed flows from unemployment to not in the labour force even in recessions. Another important finding is that the reason why the participation rate is negatively correlated with the unemployment rate is because net flows from employment to both unemployment and to not in the labour force are highly correlated. It cannot be explained by flows occurring between unemployment and not in the labour force.

Suggested Citation

  • Robert Dixon & John Freebairn & G. C. Lim, 2004. "A Framework For Understanding Changes In The Unemployment Rate In A Flows Context: An Examination Net Flows In The Australian Labour Market," Department of Economics - Working Papers Series 910, The University of Melbourne.
    • Handle: RePEc:mlb:wpaper:910
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    File URL: http://www.economics.unimelb.edu.au/downloads/wpapers-04/910.pdf
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    References listed on IDEAS

    as
    1. Brian Bell & James Smith, 2002. "On gross worker flows in the United Kingdom: evidence from the Labour Force Survey," Bank of England working papers 160, Bank of England.
    2. Dixon, R., 2001. "Australian Labour Force Data: How Representative is the 'Population Represented by the Matched Sample'?," Department of Economics - Working Papers Series 772, The University of Melbourne.
    3. Robert Dixon & John Freebairn & Guay Lim, 2003. "Why are recessions as deep as they are? The behaviour over time of the outflow from unemployment: a new perspective," Australian Journal of Labour Economics (AJLE), Bankwest Curtin Economics Centre (BCEC), Curtin Business School, vol. 6(1), pages 37-64, March.
    4. Jeff Borland, 1996. "Labour Market Flows Data for Australia," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 29(2), pages 225-235, April.
    5. Jerome Fahrer & Alexandra Heath, 1992. "The Evolution of Employment and Unemployment in Australia," RBA Research Discussion Papers rdp9215, Reserve Bank of Australia.
    6. William Foster, 1981. "Gross Flows in the Australian Labour Market A First Look," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 14(4), pages 57-64, December.
    7. Robert Dixon, 2001. "Australian Labour Force Data: How Representative is the ‘Population Represented by the Matched Sample’?," The Economic and Labour Relations Review, , vol. 12(2), pages 303-330, December.
    8. Robert Dixon & G.C. Lim, 2002. "Australian gross flows data: the labour force survey and the size of the population represented by the matched sample," Australian Journal of Labour Economics (AJLE), Bankwest Curtin Economics Centre (BCEC), Curtin Business School, vol. 5(1), pages 1-21, March.
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    Cited by:

    1. Andrew Evans, 2018. "Okun coefficients and participation coefficients by age and gender," IZA Journal of Labor Economics, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 7(1), pages 1-22, December.
    2. Andrew E. Evans, 2020. "Average labour productivity dynamics over the business cycle," Empirical Economics, Springer, vol. 59(4), pages 1833-1863, October.
    3. Chindamo, Phillip, 2010. "Australian labour market flows over the business cycle," MPRA Paper 35710, University Library of Munich, Germany.
    4. Natalia Ponomareva & Jeffrey Sheen, 2010. "Cyclical Flows in Australian Labour Markets," The Economic Record, The Economic Society of Australia, vol. 86(s1), pages 35-48, September.

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    More about this item

    Keywords

    Worker Flows Business Cycle Unemployment Participation Rate;

    JEL classification:

    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure

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