The Link Between Unemployment And Real Economic Growth In Australia


In our modelwe are looking for breaks near the years and obtain the following intervals and coefficients: 

dup = -0.76dlnG + 1.50,     1993>t≥1977

dup = -0.35dlnG + 0.75,      2006≥t≥1993     

dup = -0.76dlnG + 1.25,      2013≥t≥2007              

dup = -0.36dlnG + 0.25,               t≥2014    (1)

where dup – one-year change in the (OECD) the unemployment rate , G – real GDP per capita (2011 prices). The break years are slightly different from those estimated from the inflation curves in Figure 1. This is likely due to much the higher sensitivity of the predicted unemployment rate to the coefficients in (1). As could be expected, there are 3 pivot points (breaks) in the linear dependence: 1993, 2006, and 2013. Nevertheless, the overall fit is relatively good (Rsq=0.87) as the lower panel in Figure 2 demonstrates. The revised model for Australia is successful.



Figure 2. Upper panel: The measured rate of unemployment in Australia between 1977 and 2018, and the rate predicted by model (1) with the real GDP per capita published by the MPD and the unemployment rate reported by the OECD. Middle panel: The model residual: stdev=2.5%. Lower panel: Linear regression of the measured and predicted time series. Rsq. = 0.87. 


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