Dynamic asymmetries in the Australian labour market

This paper examines whether Australian labour market variables, in particular aggregate employment and unemployment, exhibit particular forms of nonlinearity and asymmetry that are of economic interest. the analysis used nonparametric tests - the BDS text and the triples test. The BDS test assess whether general residual unexplained nonlinearity remain since linear modeling has been applied to the data. The triples test is used to test for 'steepness' and 'deepness' asymmetries at the business cycle frequency. Evidence is found of nonlinearities. there is little evidence of deepness in the Australian macroeconomy but there is evidence of asymmetric steepness for both employment and unemployment as well as the CPI. Nominal or real wages exhibit neither forms of asymmetry. The evidence suggests that unemployment (employment) rises (falls) rapidly in recessions and only recovers slowly over time. Unemployment and employment are also found to exhibit asymmetric responses to positive and negative shocks over the cycle. The 'current depth of recession' does not provide a rebounding affect out of recessions - positive shocks do not have a stronger effect than negative shocks in recessions. However, some evidence is found for both aggregate employment and unemployment of an 'overheating' effect in expansions - negative shocks have stronger effects than positive shocks. This evidence suggests that unemployment displays a tendency to ratchet up in recessions and that the Australian labour market appears to exhibit significant 'speed limits' in expansion. The depth of GDP recessions is also found to have significant influence on the labour market.