An Australian Perspective
Edited by Mohamed Ariff, John H. Farrar and Ahmed M. Khalid
Chapter 5: Unemployment and the Global Financial Crisis: Who Suffered Most and Why?
Melisa Bond and Noel Gaston 5.1 INTRODUCTION This chapter examines the relationship between the deterioration of the labour market and the Global Financial Crisis (GFC). Specifically, we examine the labour market performance in 29 countries as measured by the unemployment rate. Changes in the unemployment rate are an indicator of the economic hardship experienced by workers over the business cycle. In addition to being considered a key macroeconomic indicator, this measure is a political barometer for governments. Of course, labour markets respond to cyclical and other shocks in a number of ways. In particular, there are both quantity and price responses in labour markets: real wages might fall to insulate workers from unemployment; non-pecuniary benefits may be reduced or eliminated; workers could be pressed to take leave entitlements now, rather than later; there might be increased work-sharing, reduced overtime, a move to part-time work and increased casualization of the workforce. Arguably, increases in the unemployment rate are positively correlated with adverse changes in labour market outcomes for most workers. From a macroeconomic perspective, increases in the unemployment rate are a sufficient statistic for worker hardship and an indicator of the need for governments to intervene. Are sustained movements in the unemployment rate due to sound or unsound economic management? Does it matter whether the labour market is a deregulated one? Are domestic labour market outcomes driven by international factors which overwhelm changes in domestic conditions? These are the principal questions posed in the present chapter. We focus on two measures...
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