Regional Economic Disparities in Australia
IMF Working Papers, August 1, 2004
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Bibliographic details
- Authors: Uma Ramakrishnan, Martin D. Cerisola
- Published: August 1, 2004
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451856477.001
Summary
- Australia's remarkable economic performance during the 1990s has not produced significant convergence of real per capita income, output, and employment levels across states and territories.
- The paper examines economic rigidities that may have contributed to the lack of convergence, focusing on labor-market rigidities and the structure of federal government transfers to households and subnational governments.
- Key analytical conclusion: the wage awards system has limited the adjustment of real wages to productivity differentials, and federal transfers to households have potentially reduced work incentives in high-unemployment states by limiting labor force participation.
Findings on regional outcomes
- No significant convergence in:
- real per capita income
- output
- employment levels
- Higher unemployment rates in some states associated with constrained wage adjustment mechanisms.
- Federal government transfers to households appear to have adversely affected work incentives in high unemployment states by limiting participation in the labor force.
Analysis of economic rigidities
- Wage awards system:
- Restricted adjustment of real wages to productivity differentials.
- Contributed to higher unemployment rates in some states.
- Federal government transfers:
- Transfers to households may limit labor force participation in high-unemployment states.
- Structure of transfers to subnational governments also examined as a potential rigidity affecting regional adjustment.
Policy implications and recommendations
- Address labor-market rigidities that prevent real wage adjustment to productivity differentials to reduce unemployment disparities across states.
- Reassess the design of federal government transfers to households to avoid creating adverse work incentives in high-unemployment states.
- Consider reforms to the structure of transfers to subnational governments to improve regional convergence dynamics.
IMF Working Paper by Uma Ramakrishnan and Martin D. Cerisola, August 1, 2004; 23 pages; Working Paper No. 2004/144; DOI: https://doi.org/10.5089/9781451856477.001