Regional Unemployment Disparities

In this paper we examine the nature of disparities in regional (State) unemployment rates in Australia over the period 1978-1999 and their relationship to the national unemployment rate. As a measure of dispersion we use the sum of the (weighted) deviations of regional unemployment rates from the national rate. We show that this figure may be interpreted as the number of new jobs or labour force movements that would be needed to even out unemployment rates between regions, expressed as a proportion of the total number currently employed in all regions. Using co-integration analysis, we find that there is a (long-run) relationship between the degree of dispersion in the regional unemployment rates and the level of the national unemployment rate. The relationship between the two is negative implying that, as the national unemployment rate falls, micro and/or differentiated labour markets policies need to bite harder (and affect proportionately more people) if equity in unemployment across regions is to be maintained. We also find that the trade-off between dispersion and unemployment has become steeper in the period following significant deregulation of the Australian economy in the early Nineteen-Eighties. It would appear likely that this reflects an increase in differences in the Natural Rate of Unemployment between the regions since that time.