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The Labour Market and Structural Change

The Labour Market and Structural Change

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10/09/2012

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The Labour Market, Structural Change and RecentEconomic Developments
Philip LoweDeputy GovernorFinsia Leadership EventHobart – 9 October 2012
Embargo: 12.40 pm, AEDT, Tuesday, 9 October 2012
 
 
The Labour Market, Structural Change and Recent Economic Developments
1
 
It is a pleasure to be in Hobart today and I would very much like to thank Finsia forthe invitation to this lunch.My remarks this afternoon are largely centred on the Australian labour market. Theypick up on two important issues. The first is one that the Reserve Bank has spokenabout at length over recent years, and that is structural change. Today, I would like tofocus on how this change has been affecting the operation of the Australian labourmarket. The second issue is a more timely one, and that is how recent developmentsin the labour market can help us better understand the current balance between supplyand demand in the economy.
Structural Change
No doubt, you have all heard much discussion over recent times about structuralchange in Australia, and why it is occurring. At the centre of a number of the changesthat are taking place is the industrialisation and growth of Asia. This has resulted inhigh prices for Australia’s commodity and food exports, as well as a high exchangerate. The most obvious effect is the rapid expansion of the resources sector that hasbeen underway for some time. Another important factor has been the marked changein Australians’ propensity to borrow to buy assets, especially houses. And then thereis the ongoing growth in our demand for services as our incomes grow and thepopulation ages. Just as other forces have done so for more than 200 years, theseforces are reshaping our economy.But the concept of structural change – which is talked about a lot by economists – is afairly abstract one for many people. It does become very real though when it affectspeople’s jobs – the nature of their work, the industries they are employed in, thesecurity of their employment, their career opportunities and the wages they get paid.The Reserve Bank must, by the nature of our responsibilities, focus primarily onaggregate outcomes. However, we also try to understand what is going on beneaththese aggregates, and how people’s lives are being affected.Before I talk about the detail, it is worth starting with the aggregate unemploymentrate (Graph 1). The key point here is that unemployment remains low. In the past30 years, there have only been four years in which the unemployment rate hasaveraged below its current 5¼ per cent. Australia has one of the lowestunemployment rates among the advanced economies, an outcome that seemedimprobable for much of my professional career.
1
I would like to thank Patrick D’Arcy for his valuable assistance in the preparation of this talk.
 
2.
Graph 1
Underneath this low and steady unemployment rate, there is a great deal of movementat the individual worker level. Although it is still typical for most people to haverelatively long tenure in a single job, a large number of people change jobs each year.The latest data available from the Australian Bureau of Statistics (ABS) show that atFebruary 2012 around 2.3 million people – almost one-fifth of the total number of employed people – were newly employed having been in their job for less than ayear. While a little under half of these were starting work for the first time or werenot previously working, 1.2 million people moved from one job to another. And thisis in a year when the net growth in published employment was just 23 000. Thischanging in jobs occurred for a range of reasons. Around three-quarters werevoluntary, including for personal reasons or to take advantage of new opportunities.The remaining quarter was involuntary including because the previous employer wentout of business or the nature of the business has changed.The structural changes in the economy are clearly one factor contributing to thismovement of people. This is of course nothing new. There is always a degree of structural change occurring, and the strong growth in the resources sector is but thelatest example. Nevertheless, there is some evidence that the changes taking placehave led to a higher rate of job turnover in recent times than has been the case for thepast two decades (Graph 2). The number of people who left a job over the year toFebruary 2012, as a share of those employed some time during the year, was thehighest in two decades, with fairly high rates of both voluntary and involuntaryseparations.This high rate of turnover, with relatively modest aggregate employment growth, isconsistent with a lot of new job opportunities opening up in various parts of theeconomy and, at the same time, other jobs ceasing to exist. Another indication of thisis that the official measure of job vacancies has remained relatively high, yetemployment growth has been relatively subdued.
Unemployment Rate
02468100246810%%2012
Sources: ABS; RBA
20041996198819801972

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