The Market for Skilled Labour and the Trade Cycle

Although experiencing trade cycles, Australia is almost unique in maintaining 20 years of positive economic growth and has survived the global financial crisis relatively unscathed. The economic boom concentrated attention on skill shortages in Australia and their role in preventing the economy from reaching its full potential level of output and putting pressure on inflation. Economic growth, structural change and technological change have had important effects on skills mix. This paper concentrates on the extent to which the market for skilled labour has adjusted to changed economic conditions. It uses unique data covering different stages of the business cycle from 1991, the middle of a recession; 1996, the recovery; 2001, the boom; and 2006, severe skill shortages. In particular, the impact on different dimensions of skills mix and the role of earnings are examined. The analysis is of general interest since the findings shed light on, more generally, how labour markets work