Labor Market Adjustments to Shocks in Australia

34 Pages Posted: 9 Aug 2017

See all articles by Adil Mohommad

Adil Mohommad

International Monetary Fund (IMF)

Date Written: May 2017


Labor markets in Australia have adjusted smoothly to significant declines in commodity priceswith little increase in unemployment. This paper examines several aspects of the adjustment,focusing on (i) evidence of increased labor market frictions following the commodity pricedecline; (ii) flexibility in labor input adjustment in response to demand shocks; (iii) changes inlabor productivity in the wake of resource reallocation with the decline in mining investment,(iv) and the role of migration in adjusting to the commodity price and mining investment cycle.We find little evidence of increased labor market frictions with the decline in commodity prices.The relatively smooth transition has been assisted by increased flexibility in adjustment ofworker hours over time. Labor productivity growth has sustained its historical average throughthe transition, despite some temporary drag as the economy rebalances. Finally, migration hasplayed a key role in labor market adjustment through the commodity cycle.

Keywords: Australia, Asia and Pacific, labor market dynamics, economic flexibility, Labor Force and Employment, Size, and Structure

JEL Classification: E24, J21, J23, J31, J61, J63

Suggested Citation

Mohommad, Adil, Labor Market Adjustments to Shocks in Australia (May 2017). IMF Working Paper No. 17/124. Available at SSRN:

Adil Mohommad (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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