CofFEE - Centre of Full Employment and Equity

This project is being sponsored by the International Labour Organization (ILO) and aims to provide a framework for further extending the EPWP employment programme in South Africa to reduce poverty and to design a framework for determining minimum wages in the EPWP.

Job Creation and Job Destruction in Australia

The Project focuses on the processes of job creation and destruction in Australia using sophisticated econometric modelling and an innovative mix of data sources. The research outcomes will deliver benefits in the improvement of labour market policy. Special focus will be on the impacts of structural change, trade liberalisation and the role of small business. The research will fill major gaps in the literature by providing new insights into job creation and destruction processes and the consequences for unemployment, at levels of disaggregation and in sectors not previously studied, notably, full-time/part-time; public/private; the service sector; as well as demographic variability.

This Project was funded by an Australian Research Council Discovery Grant over 2004-07 and is on-going into 2008

Creating effective local labour markets - a new framework for regional employment policy

The Project will develop a new framework for designing regional employment policy aimed at providing effective solutions to persistently high unemployment across Australia. It will integrate the renewed international focus on public employment strategies and local partnerships with existing and other emerging policy directions. The international experience in adapting national employment policy to local conditions and the feasibility of local public job creation will be evaluated. The findings will refine a proposal for a Community Development Job Guarantee. The Project will develop innovative assessment mechanisms for matching the local unemployed with local job opportunities to enhance regional labour market outcomes.

This Project is being supported by an Australian Research Council Discovery Project Grant over 2004-08. A Final Report will be launched in October 2008.

Regional labour markets - the relationship between the national economy and the regions

The project examines regional labour markets, their interactions and their characteristics. Regional employment and unemployment and the relationship to national macro conditions and persistence of regional disparities is also examined. The team has assembled a comprehensive regional data base which is used in the studies.

Two major projects are being undertaken and are being funded by separate ARC Discovery Projects over 2008-2010:

A society divided: a multilevel approach for understanding socio-economic opportunity and vulnerability - this project is being conducted with Assoc. Prof Scott Baum from Griffith University.
This Project provides an understanding into the multidimensional and multilevel nature of socioeconomic opportunity and vulnerability in Australian society. The project has national social and policy significance, is empirically and methodologically innovative and draws on increasing international interest in understanding the ways in which people and place interact to influence individual level outcomes. The outcomes will be significant across a wide range of policy domains, including labour market, education, health, human services, housing and community development as each can benefit from a better understanding of how given people and place contexts impact on socio-economic outcomes.
dvancing spatial research by reconstructing Australia's economic geography - this project is being funded by an ARC Discovery Project 2008-2010 and is being conducted with Assoc. Prof Scott Baum from Griffith University.
ABS Census data is disseminated according to an administratively-based geography which may not reflect economic behaviour (eg, local labour markets). Subsequent socio-economic analysis may then be misleading due to incorrect spatial aggregation. This Project creates a new spatial unit (Commuting Area) based on commuting patterns to address these issues and provides a robust geography to conduct spatial research on nationally significant socio-economic issues. The outcomes will include various (occupation-based) geographies, new maps (shape files), revised Census-based datasets and case study analysis of the evolving spatial imbalance between housing and jobs using the new geographies. The Project is highly relevant for regional policy.

The latter project is also part of a major project within ARCRNSISS which aims to develop a Shared Data Archive. CofFEE's work involves the development of a new geography based on functional regions which the rest of the databases will be based.

The Job Guarantee

Under the Job Guarantee policy, the government continuously absorbs workers displaced from private sector employment. The Job Guarantee employees would be paid the minimum wage, which defines a wage floor for the economy. Government employment and spending automatically increases (decreases) as jobs are lost (gained) in the private sector. The approach generates full employment and price stability. The Job Guarantee wage provides a floor that prevents serious deflation from occurring and defines the private sector wage structure.

The project aims to further develop the Job Guarantee model in a variety of ways:

Exploring the notion of income maintenance versus responsibility to work.
Operational issues - what jobs, where and how?
Advancing the monetary critique to show that budget deficits do not need to be financed and any budget constraints are illusory.
Developing the theoretical full employment and price stability model.

W.F. Mitchell (1998). 'The Buffer Stock Employment Model - Full Employment without a NAIRU', Journal of Economic Issues, 32(2), 547-55.

Please consult the Working Papers series for publications as they become available.

Estimating the costs of inflation targetting monetary policy in Australia and across selected OECD countries

This Project explores the validity of the NAIRU concept as a policy tool. It is also concerned with estimating the costs of inflation targetting monetary policy in Australia and across selected OECD countries

This Project aims to inform this important debate by estimating the costs of inflation targetting in two specific ways: (a) by generating more accurate estimates of the so-called Sacrifice Ratio (SR) and Okun coefficient, which are measures of foregone output and unemployment losses; and (b) to examine the NAIRU hypothesis in an asymmetric context. The work will improve the assessment of the costs and benefits of inflation targetting and thus enlighten the policy debate, which currently lacks a firm understanding of these costs.

Present a critical outline of the major econometric methods that have been used to estimate the SR and the Okun coefficient;
Formally test for non-linearity in the cyclical behaviour of real output in Australia (extending the work of Mitchell, 2002);
Estimate a system of equations including a Phillips curve (relating inflation to unemployment) and an Okun equation (relating unemployment to output) to derive estimates of the SR and the Okun coefficient using a Cointegration-Error Correction framework;
Extend (c) by further developing the convex Phillips curve model of Mitchell and Muysken (2002) and testing for model asymmetries in the Okun equation and the Phillips curve using the Threshold Autoregression (TAR) Cointegration model (Enders and Siklos, 2001).
Re-compute the SR and Okun coefficient after taking into account the impacts of asymmetry and compare them to the linear results from (c).
Test for the constancy and magnitude of the NAIRU in the linear and non-linear models.
Estimate the relationship between inflation and output (and unemployment) to examine the impact of monetary policy changes using a Structural Vector Autoregressive (SVAR) models. Estimate the SR by computing impulse response functions derived from the SVAR regressions;
Provide a comparative analysis of the estimates of the SR and Okun coefficient derived from the different econometric approaches by assessing their precision against standard forecasting and model evaluation criteria.

Public and Private Sector Employment

This project is related to the Job Guarantee work and seeks to trace the respective contributions of the public and private sector to total employment since 1960. The private sector has always only been able to employ around 77 per cent of the labour force. Unless the public sector provides jobs for the remaining workers seeking employment unemployment will remain high. There is evidence that before the cutbacks in public sector employment the government provided an employer of last resort capacity to the economy. Certain areas in the public sector absorbed workers when there was insufficient private demand and thus maintained full employment. Data is being collected from government bulletins to construct a time series for government employment by department and level (Federal, State, Local) since 1960. Regression analysis will then test which areas of the public sector exhibited counter-cyclical employment behaviour.

Developing a framework for economic, social and environmental sustainability

This project seeks to develop an integrated approach to maintaining systems that deliver economic, social and environmental sustainability. Economic sustainability begins with the achievement and maintenance of full employment.

Costs of Unemployment

This work assesses the costs of unemployment to provide some balance to the current policy stance, which is prepared to trade-off higher unemployment in search of low inflation rates.

This project is also linked to the work CofFEE is doing to develop a more comprehensive measurement framework for a Genuine Progress Indicator.

CofFEE-1 Macroeconometric Model

Work has begun on the construction of CofFEE-1, which is the Centre's large-scale macroeconometric policy analysis and forecasting model. The structure of the model will reflect the Post-Keynesian nature of research in the Centre and will represent a competitor to the Treasury model in Australia.

Explaining difference in Unemployment in Australia, Japan and the USA

This project aims to contrast and compare the unemployment performance of Australia, Japan and the USA. It is often claimed that the USA provides a superior economic policy model due to its relatively lower unemployment rates. The project seeks to examine that proposition.

The behaviour of financial markets and their impact on macroeconomic performance

This is a broad research project with many dimensions ranging from institutional analysis to financial econometric analysis. The aim is to understand the way financial markets behave and to examine in detail the way this behaviour impacts on the relationship between the central bank and the commercial banks and macroeconomic performance of the economy.

The Project recognises the importance that money has in explaining the dynamics of the capitalist economies. Post Keynesians place the financial and monetary sectors at the centre of macroeconomic analysis. The labour market is a considered a derivative of that analysis rather than being a stand-alone issue.

The Project also is helping to build a quantiative financial modelling group within CofFEE which will aid in the development of financial modules in the CofFEE-1 macroeconomic modelling team.

Researchers in the Centre are pursuing many themes under the broad ambit provided by this Project area:

Examining the implications of government as the monopoly issuer of currency and the options this presents it to achieve full employment by appropriate net spending;
Examining the relationship between budget deficits, interest rates and currency fluctuations;
The econometric testing of the fragility hypothesis and financial market instability;
Multi-period dynamic hedging strategies with SPI futures using a fractionally integrated (FIGARCH) component model;
Modelling volatility in macroeconomic financial time series using conditional variance models;
Developing pricing option models for electricity derivatives and the impact of volatility in the conditional variance of spot electricity prices;
Exploring the issues in international finance, including quantitative models of financial risk managemen, an examination of the growth of derivative markets and hedge funds, international debt, the role of the International Monetary Fund and regulatory options for the international financial system;
Examining the implications of the European monetary system for Australia;
Examining the implications of superannuation funds for the conduct of macroeconomic policy in Australia, with an emphasis on the impacts on aggregate demand.

Bill Mitchell is leading the quantitative financial econometrics aspects while Warren Mosler, a leading financial market practitioner is playing a central role in developing the models outlining how the financial markets actually work. Significant international assistance is also being received from Randy Wray (UMKC-CFEPS) who is an leading endogenous money theorist.

For further information on any of these projects please contact CofFEE Office or ring on +61-2-4921 7283.

Current Research Projects

Evaluating the Extended Public Works Programme in South Africa