Abstract
This study relates Australian household saving more closely to movements in asset market using event study analysis and econometric analysis. In this study, the policy challenges for Australia from rebalancing in China, a temporary growth slowdown in China, and a recession in advanced countries are analyzed. The Globally Integrated Monetary and Fiscal Model (GIMF) is used for policy challenges. The impact of the mining boom on the Australian labor market is also discussed in this paper.
III. The Impact of the Mining Boom on the Australian Labor Market1
1. Australia’s mining boom is increasing demand for labor in the resources and related construction sectors. In addition, robust income growth, supported by elevated terms of trade and mineral wealth, has driven consumption growth and demand for labor in service sectors such as health care.2 This is happening at the same time as the population ages and the economy continues to become more service-oriented. Meeting the rising demand for labor will require not only raising labor supply but also moving labor across industries and regions. This note discusses the impact of the mining boom on the labor market so far for Australia and implications for New Zealand, and outlines the policy measures taken to increase labor participation and encourage the movement of labor. It also discusses further policy action that could be taken to increase labor supply.
A. What Has Been the Impact of the Mining Boom So Far?
2. The mining boom began in 2003 and contributed to Australia’s strong labor market performance (Figure III.1). Australia has enjoyed faster employment growth than many other OECD countries, with a steady rise of labor participation. Compared to many other OECD peers, the rise of unemployment in Australia during the recent global crisis was smaller and turned around faster, with the unemployment rate already falling back to around the NAIRU (4½–5 percent). New Zealand’s unemployment rate, however, has not fallen to pre-crisis level. Like their peers, the average hours worked in Australia and New Zealand displayed a downward trend during the last two decades.3
Australia: Labor Market Indicators
Citation: IMF Staff Country Reports 2011, 301; 10.5089/9781463921934.002.A003
Australia: Labor Market Indicators
Citation: IMF Staff Country Reports 2011, 301; 10.5089/9781463921934.002.A003
Australia: Labor Market Indicators
Citation: IMF Staff Country Reports 2011, 301; 10.5089/9781463921934.002.A003
3. The mining boom has played a role in shaping the industry composition of employment in Australia (Figure III.2). Employment in mining and related construction grew strongly. Together, mining and construction made up around 10 percent of total employment. Importantly, these two sectors directly accounted for over 20 percent of new jobs created since 2003. Service sectors such as health care also enjoyed strong employment growth, supported by income growth associated with high commodity prices and population aging. Moreover, some of the service industries benefited directly from the mining sector’s demand for technical support, with employment in the professional, scientific, and technical services sector expanding by more than 200,000 since 2003. The stagnation in manufacturing employment is consistent with Australia’s long-term trend toward a more service-based economy, also evident in other advanced economies. Nonetheless, manufacturing employment growth fared relatively better in Australia than in many other advanced economies. There is also large differentiation within the manufacturing sector, with employment in some sub-sectors benefiting from the recent boom while other sub-sectors contracted (bottom right chart of Figure III.2).
Employment Growth Across Sectors
Citation: IMF Staff Country Reports 2011, 301; 10.5089/9781463921934.002.A003
Employment Growth Across Sectors
Citation: IMF Staff Country Reports 2011, 301; 10.5089/9781463921934.002.A003
Employment Growth Across Sectors
Citation: IMF Staff Country Reports 2011, 301; 10.5089/9781463921934.002.A003
4. The mining boom has also contributed to labor movement across regions. The population of Queensland and Western Australia, where a large chunk of mining investment has taken place, rose at a much faster pace than the national average, although Queensland as the sunshine state also attracts retirees. In particular, interstate migration data suggest that major mining states may have attracted population from other more populous regions such as New South Wales. Nevertheless, given the relative strength of the labor market in major mining states, the extent of interstate migration was limited. Overseas migration is the most important source of population increase for most states, and it plays a particularly large role in Western Australia.
State Population Growth (Dec 2003 - Dec 2010)
(In percent of Dec 2003 population)
Citation: IMF Staff Country Reports 2011, 301; 10.5089/9781463921934.002.A003
Source: ABSState Population Growth (Dec 2003 - Dec 2010)
(In percent of Dec 2003 population)
Citation: IMF Staff Country Reports 2011, 301; 10.5089/9781463921934.002.A003
Source: ABSState Population Growth (Dec 2003 - Dec 2010)
(In percent of Dec 2003 population)
Citation: IMF Staff Country Reports 2011, 301; 10.5089/9781463921934.002.A003
Source: ABS5. Reflecting a unified labor market between Australia and New Zealand, New Zealand has been an important source of overseas migration to Australia.4 Although permanent immigration from Asia grew faster during 2003–10, immigration from New Zealand alone still accounted for 10–15 percent of the total. Furthermore, the number of settler arrivals from New Zealand increased by about 40 percent during 2010–11 from the previous year, making up 16 percent of the total. Australia has also remained the single most important destination of emigration for New Zealand. This suggests that the ongoing mining boom and robust economic growth in Australia will have implications for the labor market in New Zealand.
Australia: Permanent Immigration by Country of Birth*
(In percent of total)
Citation: IMF Staff Country Reports 2011, 301; 10.5089/9781463921934.002.A003
* Excludes immigration due to humanitarian and special eligibility reasons. Immigration from New Zealand includes New Zealand citizens that were born in other countries.Source: DIACAustralia: Permanent Immigration by Country of Birth*
(In percent of total)
Citation: IMF Staff Country Reports 2011, 301; 10.5089/9781463921934.002.A003
* Excludes immigration due to humanitarian and special eligibility reasons. Immigration from New Zealand includes New Zealand citizens that were born in other countries.Source: DIACAustralia: Permanent Immigration by Country of Birth*
(In percent of total)
Citation: IMF Staff Country Reports 2011, 301; 10.5089/9781463921934.002.A003
* Excludes immigration due to humanitarian and special eligibility reasons. Immigration from New Zealand includes New Zealand citizens that were born in other countries.Source: DIAC
New Zealand: Emigrants by Country of Destination
(In percent of total)
Citation: IMF Staff Country Reports 2011, 301; 10.5089/9781463921934.002.A003
Source: New Zealand Time SeriesNew Zealand: Emigrants by Country of Destination
(In percent of total)
Citation: IMF Staff Country Reports 2011, 301; 10.5089/9781463921934.002.A003
Source: New Zealand Time SeriesNew Zealand: Emigrants by Country of Destination
(In percent of total)
Citation: IMF Staff Country Reports 2011, 301; 10.5089/9781463921934.002.A003
Source: New Zealand Time Series6. Labor pressure in Australia’s major mining states may emerge (Figure III.3). Thanks to the overall economic expansion supported by the mining boom, all states and territories saw unemployment rates dropping and labor participation rising from 2003. Two major mining states Queensland and Western Australia accounted for about 55 percent of total value added in mining and construction in 2010 and experienced the largest employment increase in the two sectors since 2003. As slightly less than a third of Australia’s population resides in the two states, their labor markets have tightened somewhat more than elsewhere. Western Australia, for example, has the lowest unemployment rate, the lowest under-employment rate, and the highest labor participation rate among all six states and its labor cost has risen, on average, at a much faster pace than in other regions since 2007.5 The labor pressure could be exacerbated by future large mining investment. Together, Queensland and Western Australia are expected to account for almost 90 percent of total resource investment in the pipeline, currently estimated at about US$300 billion (about 20 percent of 2011 GDP) over the next few years.
Australia: Mining Boom and Regional Labor Market Indicators
Citation: IMF Staff Country Reports 2011, 301; 10.5089/9781463921934.002.A003
Australia: Mining Boom and Regional Labor Market Indicators
Citation: IMF Staff Country Reports 2011, 301; 10.5089/9781463921934.002.A003
Australia: Mining Boom and Regional Labor Market Indicators
Citation: IMF Staff Country Reports 2011, 301; 10.5089/9781463921934.002.A003
B. How Has Labor Participation Responded?
7. Australia’s working age labor participation has risen steadily since the 1990s, with much of the rise having taken place since the mining boom got underway in 2003 (Figure III.4). The increase in recent years was largely driven by the rise of female participation and may have reflected that more workers were encouraged to participate in the labor force as a result of the fall in unemployment. Table III.1 decomposes the change in labor participation rates into the change in employment-working age population ratio and the change in the unemployment-working age population ratio. It suggests that the increase in labor participation in Australia during 2003–09 was entirely due to more employment opportunities (i.e., the increase in employment ratio). The text figures below also show an apparent negative correlation between unemployment and participation, reflecting the discouraged-worker effect.6
Australia: Labor Participation Rates
Citation: IMF Staff Country Reports 2011, 301; 10.5089/9781463921934.002.A003
Australia: Labor Participation Rates
Citation: IMF Staff Country Reports 2011, 301; 10.5089/9781463921934.002.A003
Australia: Labor Participation Rates
Citation: IMF Staff Country Reports 2011, 301; 10.5089/9781463921934.002.A003
Decomposition of Changes in Labor Participation Rates, 2003-09
(In percent)
Decomposition of Changes in Labor Participation Rates, 2003-09
(In percent)
| Labor Participation Rate | Employment Ratio | Unemployment Ratio | |
|---|---|---|---|
| Australia | 2.7 | 2.8 | −0.1 |
| Canada | 0.6 | 0.0 | 0.6 |
| New Zealand | 3.1 | 1.8 | 1.3 |
| Sweden | 0.5 | −1.5 | 2.0 |
| United States | −0.5 | −3.0 | 2.5 |
| OECD average | 1.8 | 0.9 | 0.8 |
Decomposition of Changes in Labor Participation Rates, 2003-09
(In percent)
| Labor Participation Rate | Employment Ratio | Unemployment Ratio | |
|---|---|---|---|
| Australia | 2.7 | 2.8 | −0.1 |
| Canada | 0.6 | 0.0 | 0.6 |
| New Zealand | 3.1 | 1.8 | 1.3 |
| Sweden | 0.5 | −1.5 | 2.0 |
| United States | −0.5 | −3.0 | 2.5 |
| OECD average | 1.8 | 0.9 | 0.8 |
Australia: Labor Participation and Unemployment Rates
(In percent)
Citation: IMF Staff Country Reports 2011, 301; 10.5089/9781463921934.002.A003
Source: ABSAustralia: Labor Participation and Unemployment Rates
(In percent)
Citation: IMF Staff Country Reports 2011, 301; 10.5089/9781463921934.002.A003
Source: ABSAustralia: Labor Participation and Unemployment Rates
(In percent)
Citation: IMF Staff Country Reports 2011, 301; 10.5089/9781463921934.002.A003
Source: ABS
Unemployment and Labor Participation Rates in OECD (2009)
(In percent)
Citation: IMF Staff Country Reports 2011, 301; 10.5089/9781463921934.002.A003
Source: OECDUnemployment and Labor Participation Rates in OECD (2009)
(In percent)
Citation: IMF Staff Country Reports 2011, 301; 10.5089/9781463921934.002.A003
Source: OECDUnemployment and Labor Participation Rates in OECD (2009)
(In percent)
Citation: IMF Staff Country Reports 2011, 301; 10.5089/9781463921934.002.A003
Source: OECD8. While labor supply has increased, Australia trails many other OECD countries in the labor participation of several key age groups. These include prime-aged males (25–54 years old), females of child-bearing age (25–44 years old), and people near retirement (55–64 years old).7 Among the 33 OECD countries with 2009 labor participation data, Australia ranks 27th in the category of prime-aged males and 25th in females of child-bearing age. While the participation rate of Australian older people (55–64) ranks 11th, it is significantly lower than the level in New Zealand and Sweden. In aggregate, the three groups accounted for about 70 percent of Australia’s work force in 2010. The cross-country comparison suggests scope to raise labor force participation further and potential benefits of examining whether policy settings may explain some of the differences.
C. Why is Australia’s Labor Participation Low in Key Groups?
9. The Disability Support Pension (DSP) is likely to have discouraged labor participation of prime-aged males in Australia (Lattimore 2007). The DSP has become a fiscally costly destination for prime-aged males with disability who are outside the workforce. While unemployment payments have fallen in recent years, expenditure on the DSP has risen strongly, with about half of all inactive men on DSP. This increase cannot be attributed to population aging or higher disability rates. Instead, one possible reason, suggested by Lattimore, is Australia’s decreased receptiveness to employ people with disabilities, accentuated by the incentives embedded in the DSP, which encourage entry and discourage exit. DSP benefit rates exceed unemployment benefits and have no job search requirements. Removing these deficiencies and encouraging beneficiaries on DSP to seek employment will help improve labor participation.
Disability Support and Unemployment Recipients
(In percent of population aged 15-64)
Citation: IMF Staff Country Reports 2011, 301; 10.5089/9781463921934.002.A003
Sources: FaHCSIA, ABSDisability Support and Unemployment Recipients
(In percent of population aged 15-64)
Citation: IMF Staff Country Reports 2011, 301; 10.5089/9781463921934.002.A003
Sources: FaHCSIA, ABSDisability Support and Unemployment Recipients
(In percent of population aged 15-64)
Citation: IMF Staff Country Reports 2011, 301; 10.5089/9781463921934.002.A003
Sources: FaHCSIA, ABS
Disability Support Recipients
(In percent of population of respective group; age 15-64)
Citation: IMF Staff Country Reports 2011, 301; 10.5089/9781463921934.002.A003
Sources: FaHCSIA, ABSDisability Support Recipients
(In percent of population of respective group; age 15-64)
Citation: IMF Staff Country Reports 2011, 301; 10.5089/9781463921934.002.A003
Sources: FaHCSIA, ABSDisability Support Recipients
(In percent of population of respective group; age 15-64)
Citation: IMF Staff Country Reports 2011, 301; 10.5089/9781463921934.002.A003
Sources: FaHCSIA, ABS10. Inflexible institutional arrangements discourage labor participation of women at child-bearing age. In particular, the choice between working and withdrawing from the labor market is influenced by access to quality child care, parental leave, and flexible work arrangement, including the availability of part-time work opportunities. The fall in labor participation due to child bearing is more pronounced in Australia than many other OCED countries. Research has suggested the need to examine child care subsidies and the quality of child care in Australia (Jaumotte 2003, Rush and Downie 2006, and Kalb 2009).
11. Labor participation rates of women at child-bearing age and older people are also affected by financial disincentives embedded in the tax and transfer systems. Indeed, higher effective marginal tax rates (EMTRs) tend to reduce work incentives of married women and older people more than other age groups.8 Dandie and Mercante (2007) found that lower-income earners, including single parents and married women, are typically more responsive to financial disincentives to work. Harding and others (2007) found that 7 percent of working-age Australians face EMTRs of 50 percent or more in 2006–07, higher than the 5 percent a decade ago. They also found that mothers are more likely to face high EMTRs.
D. Policy Measures
12. The Australian authorities have adopted policies to improve labor supply and mobility in recent years. Measures to improve child care included uncapping childcare places and increasing payments to assist working or studying parents with their out-of-pocket childcare costs.9 In April 2010, the authorities launched a five-year plan to improve the quality of family day care with a new national quality framework. A paid parental leave scheme, which has income and work requirements, went into effect on January 1, 2011. In addition, the authorities are trialing a relocation assistance package of up to $6,000 to encourage unemployed people to relocate to take up a job. Finally, the authorities are currently in transition toward increasing the superannuation eligibility age.
13. A number of further measures were rolled out in the 2011–12 Budget to encourage labor participation. These include:
Tax changes to improve work incentives. (i) Increasing the amount of the Low Income Tax Offset delivered through workers’ regular pay during the year from 50 percent to 70 percent of the total entitlement.10 This change will improve immediate rewards for work among lower-income earners. (ii) Phasing out the Dependent Spouse Tax Offset (DSTO) for people under age 40 to reduce disincentives for labor participation, particularly among young married women.11 Essentially, the DSTO was made unavailable for people with a dependent spouse who is 40 or under on July 1, 2011, unless their spouse is disabled, a caregiver, or they are eligible for the zone, overseas forces, or overseas civilian tax offsets. People with dependent spouses and children were not affected by this change because they are not eligible for this benefit, receiving instead family tax benefit.
Work requirements for those on disability pension. This involves fast-tracking strengthened DSP assessment processes; introducing appropriate participation requirements for DSP recipients under age 35 with some work capacity; and allowing DSP recipients to work more hours and remain on DSP.
Age pension. Improving the Work Bonus which rewards older people who continue to participate in the workforce.12
Single parents benefit. Reducing marginal tax rates; introducing a more generous income test for single parents on Newstart Allowance—the main unemployment benefit—with school-age children to better support part-time work; providing additional training, career advice, and parenting support.
14. The carbon tax package, announced in July 2011, proposed income tax cuts that should help raise labor participation to offset the impact of a carbon tax. In particular, the increase in the tax-free income threshold improves work incentives for working mothers.
15. There is scope to continue down this path of reforming tax and transfer systems. Many of the policy measures adopted in Australia are in line with recommendations of the Future Tax System Review (FTSR) undertaken in 2009/10. Experience in Canada, New Zealand, and Sweden also suggests potentially large gains from tax and transfer reforms in enhancing work incentives and labor participation (Box III.1). There is scope to improve work incentives by further reducing effective marginal tax rates. An option to replace the lost revenue includes more reliance on a consumption-based tax. Australia’s existing goods and services tax rate of 10 percent is relatively low by advanced country standards.
Policies of Raising Labor Participation in Canada, New Zealand, and Sweden
Canada enjoyed a rapid rise of female labor participation from the mid-1990s to mid-2000s. The tax and benefit reform in the mid-1990s played an important role in raising work incentives for women (Tsounta, 2006). On tax, the enhancement of the Child Tax Benefit and the introduction of the working income supplement for working poor in 1997 contributed to falling tax wedges on secondary earners. Federal maternity and parental leave benefits have been expanded and provision of publicly provided childcare has improved. Quebec introduced a comprehensive family support policy in 1997 while in other provinces fee subsidization is available for low-income and other needy groups. The Child Care Expense Deduction also carries an implicit subsidy to encourage female labor participation.
New Zealand’s labor participation rate of older people rose rapidly during the last two decades and is on par with the rate in the Nordic countries. Brooks (1999) found that the far-reaching social welfare reforms in the 1990s contributed to the rise. Benefit rates were cut, including unemployment benefits, while eligibility criteria were tightened. Moreover, the National Superannuation scheme was reformed, with the pension eligibility age increased sharply and the elimination of mandatory retirement age.
Despite its high tax burden, Sweden has one of the highest labor participation among OECD countries, particularly for females and older people. According to Tsounta and Bonato (2005), this can be attributed to a combination of favorable tax treatment and household subsidies targeting the most elastic labor force—women and older people. An important policy is to put most of the tax burden on primary household earners and keep the tax wedge for secondary earners low. Another important point relates to the government’s generous provision of high-quality childcare and elderly care, with employment as a precondition for receiving benefits. Parental leave benefits depend on previous earnings, providing a strong incentive for women to work prior to giving birth. The Swedish authorities recently adopted measures to further improve labor market flexibility, including reducing marginal labor income taxes and tightening administration and eligibility for sickness benefits.
16. The FTSR suggested reforms to state revenues such as using a business cash flow tax over time to finance the abolition of inefficient taxes. This could lead to gains in labor supply. For example, the review recommended the removal of stamp duties, to be achieved through a switch to more efficient taxes such as land taxes. This may improve labor mobility, as the FTSR observed that the conveyance stamp duties discourage people from changing their place of residence. The duty discourages transactions of commercial and residential property, because the effective tax rate falls the longer the property is occupied. In other words, people who move more frequently bear more tax.
17. Some insights can also be drawn from recent policy changes in New Zealand. The New Zealand authorities reduced income tax rates and raised consumption tax rates in 2010. According to Schule (2010), a revenue-neutral shift in taxes from labor and capital to consumption produces significant long-run growth gains in the New Zealand context, through increasing labor supply and investment as a result of lower tax rates. New Zealand has also undertaken a review of welfare dependency, which recommended encouraging those on benefits to seek employment.
18. Building on the policy measures already taken, further reforms of the tax and transfer systems will put Australia in a stronger position to meet labor challenges arising from the mining boom and aging population. The upcoming Tax Forum in October 2011 will provide an opportunity for discussing and building a consensus on future tax reforms. In addition, the Productivity Commission recently released a report on disability care and support, which proposed a new national disability scheme. This work could provide a basis to pursue broader reform of income support for people with disabilities and raise their employment ratio to the average OECD benchmark.
19. Meeting the rising labor demand in mining, related construction, and service sectors also requires the right skill sets in the labor force. Building on the 2009–10 higher education reforms and the 2010–11 Budget strategy of “skills for sustainable growth,” the authorities plan to invest $A 3 billion in new skills initiatives over six years to better meet the economy’s skills need.
Data Appendix
| Net and gross household saving | Haver Analytics. |
| Net public saving | Haver Analytics. |
| Net corporate saving | Haver Analytics. |
| Gross disposable income | Defined net of interest payments and including gross income of unincorporated enterprises, from Haver. |
| Real and nominal GDP | Haver Analytics. |
| Household assets and debt | Reserve Bank of Australia; Statistics Canada; Federal Reserve Board; and Haver. |
| Household credit | Reserve Bank of Australia. |
| House price index | Australian Bureau of Statistics; for panel regressions, OECD data are used because they have a longer time series for all countries. |
| Stock market index | S&P/ASX200 Share Price Index (Australia); S&P/TSX: Composite (Canada); S&P 500 Composite Index (USA); NZSX All Indexes (New Zealand); FTSE All Share Price Index (UK). All these series, and decomposition into sectoral indices, are from Haver. |
| Consumer price index | Haver Analytics. |
| Terms of trade | Haver Analytics. |
| Old and young age dependency ratios | Australian Bureau of Statistics; and Haver Analytics. |
| Government transfers | Reserve Bank of Australia; and Haver Analytics. |
| Unemployment rate | Haver Analytics. |
| Output gap | Haver Analytics; and IMF staff calculations. |
| Consumer confidence | OECD Main Economic Indicators. |
| Policy and lending interest rates | IMF International Financial Statistics. |
| Mortgage interest rate | Haver Analytics. |
| Inflation expectations | Consensus Forecasts. |
| Superannuation contributions | Australian Treasury Department. |
| Real effective exchange rate | IMF Information Notice System working database. |
| Oil price | Haver Analytics. |
| Net and gross household saving | Haver Analytics. |
| Net public saving | Haver Analytics. |
| Net corporate saving | Haver Analytics. |
| Gross disposable income | Defined net of interest payments and including gross income of unincorporated enterprises, from Haver. |
| Real and nominal GDP | Haver Analytics. |
| Household assets and debt | Reserve Bank of Australia; Statistics Canada; Federal Reserve Board; and Haver. |
| Household credit | Reserve Bank of Australia. |
| House price index | Australian Bureau of Statistics; for panel regressions, OECD data are used because they have a longer time series for all countries. |
| Stock market index | S&P/ASX200 Share Price Index (Australia); S&P/TSX: Composite (Canada); S&P 500 Composite Index (USA); NZSX All Indexes (New Zealand); FTSE All Share Price Index (UK). All these series, and decomposition into sectoral indices, are from Haver. |
| Consumer price index | Haver Analytics. |
| Terms of trade | Haver Analytics. |
| Old and young age dependency ratios | Australian Bureau of Statistics; and Haver Analytics. |
| Government transfers | Reserve Bank of Australia; and Haver Analytics. |
| Unemployment rate | Haver Analytics. |
| Output gap | Haver Analytics; and IMF staff calculations. |
| Consumer confidence | OECD Main Economic Indicators. |
| Policy and lending interest rates | IMF International Financial Statistics. |
| Mortgage interest rate | Haver Analytics. |
| Inflation expectations | Consensus Forecasts. |
| Superannuation contributions | Australian Treasury Department. |
| Real effective exchange rate | IMF Information Notice System working database. |
| Oil price | Haver Analytics. |
References
Abhayaratna J. and R. Lattimore, 2006, “Workforce Participation Rates—How Does Australia Compare?” Australian Productivity Commission Staff Working Paper.
Australian Productivity Commission, Annual Report 2006-07.
Australian Productivity Commission, 2011, “Disability Care and Support”, Productivity Commission Inquiry Report No. 54.
Australian Government Budget 2011-12.
Australia’s Future Tax System Review, http://taxreview.treasury.gov.au/content/Content.aspx?doc=html/pubs_reports.htm.
Borjas, G., 2008, Labor Economics, 4th edition, Boston, McGraw-Hill Irwin.
Borland, J., 2011, “The Australian Labor Market in the 2000s: The Quiet Decade,” paper prepared for Reserve Bank of Australia Conference, August 15-16.
Brooks, R., 1999, “The Causes of Australia’s High Unemployment Rate,” IMF Staff Country Report No. 99/1 (Washington: International Monetary Fund).
Burniau, J-M., R. Duval, and F. Jaumotte, 2003, “Coping with Aging: A Dynamic Approach to Quantify the Impact of Alternative Policy Options on Future Labor Supply,” OECD Economics Department Working Papers, No. 371.
Duval, R., 2003, “The Retirement Effects of Old-Age Pension and Early Retirement Schemes in OECD Countries,” OECD Economics Department Working Papers, No. 370.
Garton, P., 2008, “The Resources Boom and the Two-Speed Economy,” Australian Treasury Economic Roundup Issue 2008-3.
Harding A., A. Payne, Q. N. Vu, and P. Percival, 2006, “Trends in Effective Marginal Tax Rates, 1996-96 to 2006-07,” NATSEM Income and Wealth Report Issue 14.
Jaumotte, F. 2003, “Female Labor Force Participation: Past Trends and Main Determinants in OECD Countries,” OECD Economics Department Working Papers, No. 376.
Kalb, G. 2007, “Interaction of the Tax and Social Security Systems in Australia: The Effect on Effective Marginal Tax Rates,” The Australian Economic Review, Vol. 40, No. 2, pp. 186–93.
Kalb, G. 2009, “Children, Labor Supply and Childcare: Challenges for Empirical Analysis,” The Australian Economic Review, Vol. 42, No. 3, pp. 276–99.
Lattimore R., 2007, “Men Not at Work: An Analysis of Men Outside the Labor Force,” Australian Productivity Commission Staff Working Paper, January 2007.
Mitchell W., 2008, “Labor Mobility and Low-paid Workers,” Australian Fair Pay Commission Research Report No. 5/09.
Rush, E. and C. Downie, 2006, “ABC Learning Centres: A case study of Australia’s largest child care corporation,” Australia Institute Discussion Paper, No. 87.
Schule W., 2010, The Potential Contribution of Fiscal Policy to Rebalancing and Growth in New Zealand, IMF Working Paper 10/128 (Washington: International Monetary Fund).
Tsounta, E., 2006, Why Are Women Working So Much More in Canada? An International Perspective, IMF Working Paper 06/92 (Washington: International Monetary Fund).
Tsounta, E., and L. Bonato, 2005, “The Tax-Benefit System and Labor Supply in Sweden,” IMF Country Report No. 05/344 (Washington: International Monetary Fund).
Prepared by Yan Sun with research assistance from Fernan Ramirez. The paper greatly benefited from comments by colleagues in Australian Treasury and Reserve Bank of Australia.
Garton (2008) suggested large spill-over effects of strong mining-related activity on labor demand in non-mining sectors and states, more than offsetting other factors such as higher interest rates and exchange rates.
Cross-country data comparison of hours worked is not meaningful due to differences in their data sources.
Australia New Zealand Closer Economic Relations Trade Agreement stipulates a free labor market. A set of arrangements, collectively known as the Trans-Tasman Travel Arrangement, allow Australians and New Zealanders to visit, reside, and work in each other’s country without restriction. These arrangements have been supplemented by the Social Security Agreement, the Reciprocal Health Agreement, and the Child Support Agreement.
Borland (2011) found that the relation between wage growth and employment growth is similar in mining and nonmining states.
Borjas (2008) noted overwhelming evidence that the correlation between the labor participation rates of many groups and the aggregate unemployment rate is negative.
Abhayaratna and Lattimore (2006) came to a similar conclusion after adjusting for variations in statistical practices among OECD countries. This note uses OECD cross-country labor data and no adjustment has been made to the data. The latest data available are 2009 and do not capture the impact of policy changes in recent years.
EMTRs measure the proportion of an additional dollar of earnings that is lost to both income tax and implicit tax, the reduction of means-tested government benefits.
The Australian Government used to determine how many Outside School Hours Care (OSHC) and Family Day Care (FDC) places could be allocated in a particular year and in which area. By uncapping, the new system since late 2006 means that existing and new OSHC and FDC services can be fully responsive to unmet demand where it exists.
The Low Income Tax Offset (LITO) is a tax rebate for individuals on lower incomes. From July 1, 2010, it provides individuals earning less than $30,000 with a tax rebate of $1,500. Out of the maximum $1,500 benefit, $750 or 50 percent is given through the year, with the remainder delivered after a tax return is filed. The full offset is reduced by 4c for every dollar of taxable income above $30,000, meaning that income greater than $67,500 does not receive any benefit.
The dependent spouse tax offset is designed to assist taxpayers who maintain their spouse by offering a tax rebate which can be offset against any tax payable.
The Work Bonus is an incentive for age pensioners to remain in the workforce. Under the Work Bonus, half of the first $500 of biweekly employment income is disregarded from the income test for age pensioners. This means the maximum that can be disregarded is $250. Once the employment income has received the 50 percent discount, it is added to the rest of the income and the normal allowable income threshold applies.
