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ANNEX: Data Definitions
Data set: Pooled data for all Australian states and territories for the period 1990-2001. For regressions with the skill bias variable, the Australian Capital Territory has been excluded due to the absence of skill data. All nominal variables for states have been converted to real basis using each state’s GSP deflator.
Data Sources: Australian Bureau of Statistics, Department of Employment and Workplace Relations, and the Australian Treasury.
UR = (unemployment rate in state i - unemployment rate in Australia).
PWGAP = In [(productivity in state i - real wage in state i) divided by (productivity in Australia - real wage in Australia], where productivity is output per hour and real wages are average weekly earnings deflated by gross state product deflators.
TRANSFER = In [(real per capita government transfers to state i) divided by (the national average for real per capita government transfer)], where government transfer is the sum of social assistance and workers compensation from the ABS gross household income data. For the unemployment equation, transfers are normalized per labor force participant.
SKILL = In [(ratio of skill vacancies in state i to total vacancies in state i) divided by (ratio of skill vacancies in Australia to total vacancies in Australia)].
DI = In [(real per capita disposable income in state i) divided by (real per capita disposable income in Australia)].
DIG = [(1 + real per capita disposable income growth in state i) divided by (1 + real per capita disposable income growth in Australia)]-1.
GSP = In [(real per capita gross state product in state i) divided by (real per capita GDP in Australia)].
GSPG = [(1 + real per capita GSP growth in state i) divided by (1 + real per capita GDP growth in Australia)]-1.
LG = [(1 + labor force growth in state i) divided by (1 + labor force growth in Australia)]-1.
KG = real per capita investment in state i divided by real per capita investment in Australia.
GPP = In [(real per capita general purpose payments to state i) divided by (average real per capita general purpose payments in Australia)].
Prepared by Uma Ramakrishnan (ext. 35413) and Martin Cerisola (ext. 38314), who are available to answer questions.
In the paper, the term “states” is used to refer to the six Australian states and two territories.
Other factors not considered here may also have contributed to the regional disparities. For example, industry composition and diversification of a state relative to the national economy, the proximity of a region to product and factor markets, and physical and cultural amenities of a specific region could influence regional employment and output (Lawson and Dwyer, 2002).
While there are many studies pointing to this issue (Harris and Harris (1992), Cashin (1995), Cashin and Strappazzon (1998), and Neri (1998)), only a few studies (including Debelle and Vickery (1999) and Lawson and Dwyer (2002)) consider possible reasons for these disparities, and they focus mostly on labor market outcomes.
Dispersion is measured as the coefficient of variation, which is the standard deviation across the states divided by the mean.
The actual proportion of employees subject to only awards in setting wages varies by sector, industry, and enterprise size. For instance, 65 percent of the recreational industry is covered by awards only, compared with less than 6 percent of mining and finance and insurance sectors. Forty-two percent of clerical, sales, and service workers are covered by awards, compared with 3 percent of managers and administrators.
The data on government transfers include various social assistance payments, such as unemployment assistance, old age pension, and health allowances.
According to the Commission’s report, the Social Security Act provides for discouraging migration to areas with lower employment prospects, but enforcement is characterized as being lax. While the law was intended to apply to all persons who reduced their employment prospects by migrating, the penalty is applied only to those already receiving benefits.
A study has also been commissioned by the governments of New South Wales, Victoria, and Western Australia to review the methods of allocating Commonwealth grants to the states and territories, and the appropriateness of the outcomes. See Garnaut and FitzGerald (2001 and 2002).
This situation is roughly comparable to that faced by welfare recipients who confront high effective marginal income tax rates owing to the withdrawal of benefits when they return to work.
The Annex provides detailed data definitions.
Note that for the income equation, the income and government transfer variables are normalized per household because the disposable income data are on a per household basis.
Government general purpose grants to states are not added to the income equation since these grants are inter-governmental budgetary transfers and not direct payments to households.
The sample split in 1997 partly reflects the intention of assessing the impact of the labor market reforms introduced around that time.
For the impact of technology on labor productivity, see “Is Australia a New Economy?” in Australia: Selected Issues, IMF Staff Country Report No. 01/55, April 2001.
The impact of grants on growth could be narrowed down by estimating the impact of real per capita National Competition Policy Payments (NCPP) to the states. The results of the estimation of the output equation with NCPP (for the sub-sample from 1997-2001) does not alter the above story—the NCPP remains an insignificant determinant of regional growth differentials.