Australian Responses to Increases in Unemployment and Wage Inequality: Comparisons with the United Kingdom, New Zealand and the United States

Abstract

Over the last 25 years three facts have dominated much of the discussion of the macro labour market in the United States (US): constant or falling average real wages, the large increase in wage inequality, and strong employment growth. These three facts, tied together by simple models of labour demand and supply, have had a profound effect on labour market policy in some English-speaking countries which have experienced slow employment growth and high unemployment rates since 1975. Policy in these countries - Australia, United Kingdom (UK) and New Zealand (NZ) - has been strongly influenced by the idea that to achieve faster employment growth for the young and unskilled it is necessary to move towards a US-style less regulated labour market which is capable of generating slower real wage growth, greater wage inequality and more jobs. Hence the UK introduced a number of labour market reforms during the early Thatcher years (Schmitt (1995)). Australia began to deregulate the labour market from 1989 and is continuing down this path. NZ introduced large-scale reforms under the Employments Contracts Act 1991 (Maloney (1997), Silverstone et al. (1996)).