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Job markets : economic and statistical aspects of the Australian market for labour

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NO. 43

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EMBARGO 7.00 PM Monday 4 June 1979



Treasury Economic Paper No 4 has been prepared to assist public

discussion of aspects of the Australian labour market. It is

also a reference document, which presents a broad array of

labour market statistics and discusses their use.

Labour market issues are usually debated with emotion. Income,

security and status are at stake; moreover, there is the

charged rhetoric of adversary negotiators to add to what is

already emotive thinking. One aim of the paper, therefore, is

to clarify how competitive forces operate within an institutional

context which is largely structured to regulate that competition.

Labour markets are complex; they are subject to institutional

rigidities (a point of particular relevance to Australia) and

to the unpredictable behaviour of individuals. They rarely

function exactly in the ways that simple economic theory would

predict. None the less, economic forces are at work and need

to be understood if policy is not to have perverse or unexpected


The 1960s and 70s have seen substantial changes in the pattern

of supply and demand for labour.


The flexibility of the labour market has been demonstrated by

the absorption of changes in the composition of the labour

force. In the decade from 1964 to 1974 the participation rate

of married women in the labour force increased from 24 per cent

to 40 per cent. This increase was matched, partly because of

changes in the industry composition of employment, by an

increase in the demand for female labour in full time and part

time jobs that was strong enough to overcome the increase in

their relative wage rates. As a result of increasing

participation in full time education, junior labour force

participation declined in the 1960s but this decline did not

continue after 1972. In the 1970s, as a result of both social

changes and economic conditions, earlier retirements have

resulted in declining^participation rates among workers in the

60 - 64 years age group.

One factor which has continued to assist the labour market to

adjust to changing conditions has been the mobility of labour.

During the 1970s, the equivalent of the entire Australian

labour force changed jobs every four to five years. This

adds up to a picture of a very mobile labour force, moving

locations and changing jobs, occupations, and industries.

While the tendency to change jobs frequently is concentrated

among young people still settling on a career and workers in

a variety of semi-skilled occupations, there is abundant evidence


that Australians are both willing and able to move into new

jobs and adapt to the need for new skills.

Their ability to do so - that is, the demand for labour - is

dependent upon economic conditions: the rate of inflation, the

level of economic activity, changes in productivity, and the

cost of labour. If the relative costs of particular types of

labour fail to adjust to changing economic conditions this can

result in particular groups of workers being priced - or

pricing themselves - out of the job market. The paper

emphasises the importance of the wage explosion of 197^ in

creating an imbalance between real labour costs and average

labour productivity which lowered profitability and encouraged

labour shedding, labour-saving technological innovation and

the substitution of capital for labour. The acceleration of

inflation and increase in business uncertainty, resulting from

that wage explosion meant that not only did output growth slow

over the subsequent period, but those increases in private

sector output -which did occur have not been matched by

corresponding increases in the private sector's demand for labour.

All labour markets exist in institutional and social settings;

these interact with and condition the working out of purely

1 economic1 forces . In this respect the Australian labour market

is not unique, although its particular institutions are. The

Australian Conciliation and Arbitration Commission was originally

established to resolve industrial disputes; it was not conceived

as an instrument of economic regulation. Yet in performing

its industrial functions the Commission has come to determine,

directly or indirectly, terms and conditions of employment

for most of the workforce. It has thus acquired a de facto

role as an instrument of economic policy - an instrument

removed from direct government control, but one which bears

directly upon the availability of job opportunities,

particularly for certain categories of labour.

Attempts to achieve social objectives through the labour

market - whether by governments or wage-fixing tribunals -

may affect its ability to function effectively. This is not

to question the validity of such objectives but rather to

point out that their achievement through this medium may

impose costs which must be weighed against the benefits gained.

It may also be that there are other, and more appropriate,

channels through which such objectives could be sought.

Efforts to seek them through the labour market may impair

the efficiency with which it allocates labour and induces

acquisition of skills.

In current economic circumstances, the labour market is subject

to particular stresses, including those imposed by the rigidity

of institutions, and their failure, all too often, to pay enough

regard to economic realities. Unless a greater degree of

adaptability can be shown in the labour market in the future,

the full potential for recovery in economic activity in

Australia may be put. at risk.