A. J. Hagger

Measuring industry importance: an Australian application

The focus of this paper is an empirical examination of the importance of an industry in terms of its contribution to regional employment. It uses a closed input-output model. Four alternative measures of importance are presented and explored in the framework of a 58-industry input-output model of the Australian State of Tasmania. The four measures are compared to each other, to direct employment and to a multiplier-based rule-of-thumb. Our preferred measure is one which takes into account both direct effects and the strength of backward linkages. The rule-of-thumb is found to be highly correlated to this measure.

The Natural Rate of Unemployment in Australia: Estimates from a Structural VAR

The concept of the natural rate of unemployment is widely used in the analysis and discussion of macroeconomic policy. It is, however, unobservable so that estimates of the natural rate are necessarily based on a particular theory of unemployment. Hence, measures of the natural rate, whether constant or time-varying, are necessarily model-dependent. Various series based on specific models have recently become available for Australia. We set out to compute a series for the natural rate based on a minimal theoretical structure captured by a two-variable structural vector-autoregressive (SVAR) model estimated using quarterly Australian data for the period 1978-97. We assess the robustness of our estimates by varying both the theoretical restriction imposed on the model and the two variables included in the model. We find that the computed natural rate is quite sensitive to model specification, both in terms of the level and of the cyclical behaviour of the natural rate. We argue, however, that a particular variant of our model is strongly preferred to the others investigated. It produces an estimates natural rate series, the behaviour of which is broadly consistent with that of series produced by others from more restrictive models. Copyright 2000 by Blackwell Publishers Ltd/University of Adelaide and Flinders University of South Australia

The regional economic effects of a reduction in carbon emissions

Concern about climate change has led to policy to reduce CO emissions although it is likely that policy will have differential regional impacts. While regional impacts will be politically important, very little analysis of them has been carried out. This paper contributes to the analysis of this issue by building a small model involving two regions, incorporating the right to emit CO as a factor of production with the level of permitted emissions set by the national government. We argue that there is likely to be pressure on governments to use other policies to offset the possible adverse regional economic consequences of the pollution‐reduction policy; we also consider a range of such policies. Using numerical simulation, we find that a 10 per cent reduction has relatively small but regionally differentiated economic effects. Standard fiscal policies are generally ineffective or counterproductive while labour market policies are more useful in offsetting the adverse effects.

Internal Balance and External Balance

The discussion of Chapters 6 and 7 (see in particular sections 6.2 and 7.2) shows that a change in aggregate demand has consequences both for internal balance and for external balance. As regards the internal consequences, what emerges from these chapters is that a reduction in aggregate demand tends to drive the economy towards balance when demand is excess and away from balance when demand is deficient. Conversely, an increase in aggregate demand means a movement towards balance when demand is deficient and a movement away from balance when demand is excess. The external consequences of changes in aggregate demand arise from the short-run link between aggregate demand and real imports. A reduction in aggregate demand induces a fall in the quantity of imports (a movement down the short-run import function) ; and, given all the other elements in the external situation, this means a movement towards short-run external balance if international reserves are decreasing and away from balance if they are increasing. Conversely, an increase in aggregate demand induces a short-run increase in real imports and a movement towards external balance if the reserves are increasing and away from balance if they are decreasing.

Regional Unemployment Disparities: An Evaluation of Policy Measures

This paper analyses the efficacy of regional and federal government policies in reducing inter-regional unemployment disparities. We use as our framework a two-region general equilibrium model with a given freely-mobile supply of labour. We assume interregional migration to occur in response to inter-regional utility differentials. Each region has households, firms and a regional government. In addition to regional governments, there is a federal government. The firms in a region use a single factor, labour, to produce a single good which we assume to be different to that produced in the other region. It is supplied to households and to the regional government in the form of payroll taxes. Households consume some, trade some with households in the other region and give some up to the federal government as income tax. Firms and households bargain over wages and firms then choose employment to maximise profits. The resulting equilibrium will generally not be a full-employment one. We simulate a linearised numerical version of the model. We examine seven alternative policies, six carried out by a regional government and one by the federal government. In the first group there are traditional tax/expenditure polices as well as policies which might be seen as attacking the natural rate of unemployment: changes in unemployment benefits, changes in union power, changes in the labour force and changes in labour productivity. The federal government policy is a regionally- differentiated fiscal policy. Contrary to expectations, many policies which have traditionally been recommended to alleviate unemployment, are found, in fact, to exacerbate the unemployment problem.

The Inflationary Process : Market-Clearing Approach

We come now to the third of our four objectives, the objective of price stability. This was defined in Chapter 1 in a negative way as absence of a persistent upward movement in some appropriate price index. Our ultimate aim in this chapter and the next two is to consider what steps the British authorities can take to promote price stability in this sense. Before we can do this, however, we must clearly have some explanation of how the persistent upward movements in the price level, which constitute absence of price stability, actually come about. One explanation of this phenomenon will be examined in the present chapter and an alternative explanation, which seems more satisfactory for the British economy, in the next. Both of these explanations are strictly short-run in character, i.e. they purport to account for a continuous upward movement in the chosen price index short period by short period (say, month by month or quarter by quarter) over a short reaction interval (say, two or three years), rather than, say, year by year over twenty years (see section 2.2).

The Consumption Function

This chapter and the following three will be theoretical in character. Our aim in these chapters will be to expound the theoretical work on dynamic, short-run macro-relationships which has been done in recent years in the spirit of Keynes, and to give an account of the British empirical research which bears on this work. By this means we hope to provide a strong theoretical framework for the discussion of the central chapters of this part of the book, namely Chapter 6 on policy in relation to the internal balance objective and Chapter 7 on policy in relation to the objective of external balance.

Growth Policy: The Pursuit of a High Growth Rate

The widespread and continued concern about the rate of growth of the British economy in the period since the end of the Second World War is somewhat surprising in the light of Britain’s past growth performance. The available statistical information suggests that the rate of growth of real gross domestic product per head in the United Kingdom was higher in this period than in any other period of comparable length in British history. Further, the growth rate was relatively stable ; only twice since the end of the war did real G.D.P. per head actually decline (in 1952 and 1958). Business fluctuations occurred but mostly they took the form of higher than average or lower than average increases in output. The level of employment was sustained at a high level throughout the period. The percentage of the work force unemployed in any year never rose above 4 per cent; in most years it was considerably less.

The External Relationships

The short-run macro-dynamic model formulated at the end of the previous chapter represents an advance on the simple expository model set out in section 2.2 in that it introduces a considerably more refined consumption function. However, the revised model still retains certain of the defects of the basic model and we must now begin the task of eliminating these further defects.

Macro-Economic Policy Objectives

The last thirty years have seen a profoundly significant change in the list of agreed macro-economic objectives. Writing in 1931, the Macmillan Committee gave pride of place in their discussion of objectives to the desirability of raising, and then stabilising, the world prices of basic raw materials and foodstuffs, though it recognised that this was as much a matter for international, as for national, action. In the words of the report: Thus our objective should be, so far as it lies within the power of this country to influence the international price level, first of all to raise prices a long way above the present level and then to maintain them at the level thus reached with as much stability as can be managed. We recommend that this objective be accepted as the guiding aim of the monetary policy of this country. ...1