An Analysis of the Output and Employment Conversion Matrices of Australia’s Economy

Abstract

Based on two snapshots taken from the Australian economy, this study quantifies the impacts of final demand aggregates on output and employment in various sectors using the 1989 and 1997 conversion matrices. The sectoral output and employment are linked with final demand deliveries in such a way that one can measure the impacts on changes in each component of aggregate demand, other components remaining unchanged, on output and employment. A comparison of the aggregate output and employment multipliers in 1989 to 1997 indicates that while the output multipliers have increased, the employment multipliers have declined. This means that through time, due to rising labour productivity, the various components of aggregate demand would need to grow at a faster rate in order to achieve a certain employment growth. It was also found that almost all employment generated between 1989 to 1997 was in three service industries, namely community, social and personal services; wholesale retail; restaurants and property: and business services. These are industries that are least likely to have benefited from the productivity gains that resulted from the microeconomic reforms that characterised the Australian economy during this period. On a relative basis, a rise in various components of aggregate final demand can lead to a higher employment generation in these three industries.