Is there regional lock-in of unemployment rates in Australia?

Abstract

This paper assesses the persistence of unemployment rates across Australian regions to see if there is evidence of sustained disadvantage for some Australian regions. Using Australian labour market data for statistical area level 4 regions over 1999–2018, the paper finds that lagged regional unemployment rates have substantial explanatory power for current regional unemployment rates. This effect lasts at least 19 years, even after controlling for factors such as average income levels and the industry structure of each region. There is strong persistence in the male unemployment rate across regions, a weaker effect for the female unemployment rate, and no observable effect for the youth unemployment rate. Lock-in effects are even stronger for participation rates. The results suggest that there is a potential role for well-designed place-based policies to combat persistent labour market disadvantages in some regions.