Employment Growth and Poverty: An Analysis of Australian Experience, 1983-1990

Abstract

Employment growth in Australia since 1983 has been high in both historical and international terms. It has been claimed that the growth has had a major impact on reducing the incidence of poverty among working families. However, although the links between unemployment and poverty are well documented in the poverty research literature, employment growth does not necessarily lead to an automatic reduction in poverty in a labour market characterised by labour supply flexibility, two earner families and increased part-time work. This paper reviews Australian labour market changes between 1983 and 1989 and uses the poverty line methodology developed by the Poverty Commission to estimate the impact of those changes on poverty. The data used in the analysis are generated by a microsimulation model based on the 1986 Income Distribution Survey. These data are first used to estimate the incidence of poverty in 198283, 1985-86 and 1989-90 using poverty lines adjusted in relative and absolute terms. A counterfactual is constructed which simulates family incomes in 1989-90 on the assumption that 1982-83 labour market conditions prevail. Comparisons of this counterfactual with estimates of actual family incomes in 1989-90 indicate that employment growth over the period has had only a modest impact on poverty. This conclusion is shown to hold whether the changes in poverty over the period are measured using a relative or an absolute poverty standard.