An Employment Equation for Australia

Changes in standard hours of work, as occurred in the 1970s and 1980s, alter the budget constraint facing employers and their employment decisions. Using quarterly data for the period 1969:1-2004:1, an employment equation for Australia that includes standard hours as well as the usual output, real wage and trend explanatory variables is estimated. Standard hours are found to be a significant explanatory variable, and omission of the variable results in biased estimates of the parameters on the other variables, especially on the real wage. When we allow for asymmetric adjustment, employment decisions are found to respond more quickly to changes in economic conditions in recessions than in other phases of the business cycle. Copyright 2005 The Economic Society Of Australia.