Abstract
This paper explores the sources of fluctuations in sectoral employment growth rates across the Australian economy over three different periods: the pre‐terms of trade boom period; the pre‐global financial crisis (GFC) phase of the terms of trade boom; and the GFC and post‐GFC phase. We find that common cyclical fluctuations, not just sector‐specific shocks, can and do have an important effect on sectoral growth rate dispersion across the full sample. We also find that there is evidence of accelerated structural change in the latter phase of the terms of trade boom.
Highlights
Australian employment data reveal significant sectoral dispersion in employment growth over the last 35 years
We further divide the data into the period from 2000Q1 to 2008Q2 to capture the effects on sectoral employment from the pre-GFC phase of the terms of trade boom; and the GFC and post-GFC phase from 2008Q3 to the end of the sample to capture the effects of the sustained high exchange rate and relatively weak world economy
The model described by equations 1 to 5 is a variant of Watson and Engle’s (1983) general dynamic multiple indicator-multiple cause (DYMIMIC) model
Summary
Australian employment data reveal significant sectoral dispersion in employment growth over the last 35 years (see Chart 1). The data reveal some coherence between aggregate and sectoral fluctuations over the first half of the data sample, with manufacturing, construction, wholesale/retail trade and other-services employment growth moving roughly in line with aggregate employment growth These correlations are far from perfect, which suggests sectors are subject to significant sector-specific shocks, possibly in the form of different sensitivity to the aggregate cycle. Our analysis extends the work of Rissman (1997) by following the modelling strategy of Kouparitsas (2002), developed in his work decomposing US regional economic growth, which allows for the cycle to be further decomposed into common and sector-specific components This approach, when compared to Rissman’s, delivers a relatively parsimonious framework that identifies both permanent and temporary sector-specific factors in employment growth.
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