Title

A Markov-switching structural vector autoregressive model of boom and bust in the Australian labour market

Date of this Version

2-28-2015

Document Type

Journal Article

Publication Details

Citation only

Gaston, N., & Rajaguru, G. (2015). A Markov-switching structural vector autoregressive model of boom and bust in the Australian labour market. Empirical Economics, 49 (4), 1271-1299.

Access journal

2015 HERDC submission

© Copyright, Springer-Verlag Berlin Heidelberg, 2015

ISSN

0377-7332

Abstract

Major economic events, such as the global financial crisis, are episodes of identifiable duration that differ from other time periods. Using monthly data on the unemployment rate, labour force participation rate and employment for Australia for the period from 1978 to 2012, we estimate a Markov-switching SVAR model to examine the relationship between unemployment and labour force participation and the performance of the Australian labour market. Three distinct labour market regimes are identified. We find that the labour market switches between periods of low unemployment and high participation, prolonged periods of relative stability and short, sharp periods of high unemployment and low participation. A key finding is that, due to the behaviour of workers not in the labour force, the long-term effect of an upswing in labour hiring results in a lower unemployment rate and a lower labour force participation rate.

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This document has been peer reviewed.