Changes in the Australian Labour Market over the Economic Cycle

Abstract

Submissions to Australian minimum wage-setting bodies have argued that a moderate increase in minimum wages is not inconsistent with continued growth in employment. Certainly, there have been extended periods of at least moderate economic growth where this result has proven to be the case. Other economic variables have been able to deliver an increase in employment independently of whether minimum wages are considered to increase, decrease or have no effect on employment at the micro level. This paper aims to distinguish the effects of wages and activity on employment at the aggregate level, by developing a model of employment which is then used for scenario analysis. The paper is structured as follows: Section 2 is an overview of labour market trends since the mid-1980s, including changes in aggregate wages and selected minimum wage rates. Section 3 is a brief literature review. Section 4 estimates a model of employment, while Section 5 simulates the effects of different output and wage scenarios on employment.