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A Short‐Run Employment Function for Australia: 1911–12 to 1938–39
Author(s) -
SMYTH DAVID J.
Publication year - 1982
Publication title -
economic record
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.365
H-Index - 42
eISSN - 1475-4932
pISSN - 0013-0249
DOI - 10.1111/j.1475-4932.1982.tb00388.x
Subject(s) - unemployment , economics , econometrics , function (biology) , maximum likelihood , estimation , variable (mathematics) , short run , labour economics , unemployment rate , demographic economics , macroeconomics , statistics , mathematics , mathematical analysis , management , evolutionary biology , biology
This paper develops a short‐run employment function model in which the speed of adjustment is positively related to the level of unemployment. The model is fitted to aggregate Australian data for the period 1911–12 to 1938–39, a period which includes the high unemployment years of the 1930s. Full information maximum‐likelihood estimation procedures are used and a log‐likelihood ratio test indicates that the variable speed of adjustment model is to be preferred to a fixed adjustment speed model. The speed of adjustment was quite sensitive to the unemployment rate. The policy conclusion of the paper is that if Australian unemployment rates rise to levels that are unprecedented in the post‐war period, firms may shake out surplus labour at a surprisingly fast rate.