Regional labour markets: naturally less efficient?

We argue that the Government's model of the labour market is flawed. If through their impact on the NAIRU [Non-Accelerating Inflation Rate of Unemployment], institutional and behavioural factors are the major cause of unemployment in Australia, why do unemployment rates differ significantly across regions with identical institutional and legal structures? The paper argues that targeted demand stimuli to areas of high unemployment and underutilised infrastructure would be a more effective way to reduce both regional unemployment and the NAIRU, rather than increasing the incentives for labour to relocate to low unemployment urban areas where infrastructure is already overutilised. Regional employment generation administered by Councils within a Job Guarantee program to meet local needs would be an appropriate approach. The paper is organised as follows. Section 2 reviews the extant empirical literature on inter-state labour mobility. A modified wage curve is developed for Statistical Regions in Section 3, in which an analysis of the convergence of unemployment rates across Statistical Local Areas is also cited. Section 4 provides an overview of contemporary policy approaches to unemployment in regional areas. In the final section, some policy initiatives and concluding comments are presented.