#4 June 2001 - Melbourne Institute News

Melbourne Institute

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ISSN 1442-9519

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Issue 4 May/June 2001

Inaugural Sydney Business Economics Forum mentals of the economy are strong and augur well for an early return to quite good rates of GDP growth. However, he emphasised the importance of confidence levels in Australia and economic developments abroad to the shortterm outcome here.

In addressing the longer term issues he focused in particular on the linkages between household balance sheets and the balance of payments and capital flows, concluding that the fundamentals are more sound now than they were in the late 1980s when the current account was also experiencing a cyclical decline to around 3 per cent of GDP. Mr Stevens was tentatively optimistic that one-off structural shifts in household balance sheets (rising debt and wealth levels) are coming to an end and that we are likely to see a return From left: Mr Don Harding, Mr Glenn Stevens, Mr Geoff Martin, Mr Bill Evans and Dr Peter Summers at the Sydney Forum. to higher levels of saving out of current income. Second, he pointed to the possibility of a structural decline doubt a reflection of the increasing uncertainty in the current account deficit, which has averabout the state of the economy in previous aged 4.5 per cent of GDP in the past 20 years or weeks. so.

Mr Stevens presented a somewhat encouragOther speakers at the Forum included the ing overview of the short and medium to longer Melbourne Institute’s Peter Summers, who preterm economic outlook, pointing out that in the sented the Institute’s macroeconomic forecasts, Bank’s view, the broad macroeconomic funda-

Photo by Adrian Hall Photography

Forthcoming Events

Photo by Adrian Hall Photography

On 5 April the Melbourne Institute hosted its inaugural Sydney Business Economics Forum at a luncheon at the Wentworth Hotel in Sydney. This meeting, which is to be held quarterly, will complement similar Forums that the Melbourne Institute runs in Melbourne and Canberra.

The keynote address at the Sydney meeting was given by Mr Glenn Stevens, Assistant Governor of the Reserve Bank of Australia, and attracted much general and media interest, no

Mr Glenn Stevens speaking at the Forum.

and Don Harding, who discussed the macroeconomic outlook with special emphasis on the effects of the recent oil price shock. Don Harding attributed part of the blame for the world economic slowdown currently under way on the 132 per cent increase in international oil prices between December 1998 and March this year.

More specifically, he estimated the demand shock to the Australian economy from this oil shock at a substantial $2.4 billion per annum, or 0.4 per cent of GDP. (See page 5.) (continued on page 7)

★★ Inside Stories ★★ •

News on staff. See page 3

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Social policy research agenda.

See page 4

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Melbourne, Sydney and Canberra Forums in June 2001. See page 7

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Downing Lecture on 19 June 2001. See page 7

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Conference on Business Cycles and Monetary Policy on 8–9 November 2001.

See page 7

The economic effects of the oil price shock. See page 5

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Economic and Social Outlook Conference on 11–12 April 2002. See page 7 and Director’s Letter page 2

Downing Fellow to lecture on conflict between work and family.

See page 7

Melbourne Institute of Applied Economic and Social Research The University of Melbourne, Victoria 3010 Australia Phone: +61 3 8344 5330 Fax: +61 3 8344 5630 Email: melb.inst@iaesr.unimelb.edu.au WWW: http://www.melbourneinstitute.com  2001 The University of Melbourne, Melbourne Institute of Applied Economic nd Soci l Rese rch

Hard Heads, Soft Hearts: Director’s Letter As we approach another federal election, one hundred years after Federation, there are a substantial number of major economic, social and political issues being debated. These include, for example: • how can we reduce the number of jobless families in Australia?

• are the current welfare reforms appropriate and how much further do we need to go in reforming the welfare system?

• should we further deregulate or re-regulate the labour market?

• should we invest much more in education and innovation, or perhaps reorganise our education system and ‘innovation system’?

• are we becoming a branch office economy and, if so, does it matter?

• what should we do about declining prosperity in some of our regional areas?

• what is the power of monetary and fiscal policy in stabilising the economy?

• do we need to reinvigorate or slow down microeconomic reform and competition policy?

The pessimists point to a slowing economy, the very high incidence of jobless families, a widening distribution of earnings, dropping productivity growth, apparent discontent with politicians, a perception that we are in insecure times, and the global tide of anti-globalisation demonstrations. They argue that the economic reforms of the last twenty years have contributed to the problems.

The optimists suggest that the current slowdown is quite mild, and are forecasting that the economy will pick up rapidly by around the end of the year. They point out that we have been through a period of high productivity growth in the 1990s and suggest that the current slowdown of productivity growth will be temporary. They point out that employment levels are higher than they have ever been before, and contrary to many people’s perceptions, job tenure has not been declining. They say that the economic reforms of the last twenty years have given us a strong platform from which to go from strength to strength. They say that anti-globalisation demonstrations are a healthy sign of a democratic society and will ensure that government will work hard to ensure that the benefits of globalisation will be accessed by all parts of society.

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Whichever way you look at it, there are a lot of policy challenges, and let us hope that the political parties offer some exciting ideas about how to address them in this election year. We need our politicians to offer a hard-headed but soft-hearted approach to government, to provide the vision and associated policy development to allow Australia to achieve the twin goals of economic success and social justice.

The current research agenda of the Melbourne Institute is aiming to shed light on many of the policy issues and debates confronting us, and we are hopeful that it can contribute significantly to the policy discussion and development process in this period and also over the next few years.

In our macroeconomic research we are shedding considerable light on what the business cycle is and what influences it. The research agenda should enable us to go on to shed further light on how we can avoid recessions or reduce their probability, which would be a major contribution. The continual monitoring and analysis of the cycle and associated commentaries in the Mercer – Melbourne Institute Quarterly Bulletin of Economic Trends contributes significantly, I believe, to the understanding of unfolding macroeconomic data. The recent article by Don Harding on the macroeconomic impact of oil prices was a good example of this.

In our Labour, Social and Fiscal Studies research agenda we are examining the causes of unemployment and joblessness and the likely effects of alternative policy packages. We are exploring the effects of actual and hypothetical reforms to the welfare system. And we are planning a major examination of the efficiency and equity effects of the education system and possible reforms. With the Household, Income and Labour Dynamics in Australia longitudinal survey soon to go into the field, we are sowing the seeds of a major advance in our understanding of the economic and social dynamics of households, which should have significant spinoffs for hard-headed but soft-hearted policy making.

In our Enterprise Performance research we are examining the foundations of corporate success, of innovative behaviour and productivity growth. We are also exploring how reforms to the industrial relations system have impacted upon Australian enterprises and their workforces.

As well as conducting this research we seek to communicate the findings to government, business and community groups, as well as other

academics, through our publications, forums, conferences and the media. For example in our Economics Forums in Melbourne, Sydney and Canberra, we present some of these findings as well as provide a platform for important researchers and opinion leaders to discuss and debate these issues.

After the next federal election, we will be holding a major Economic and Social Outlook Conference. It is planned for April 2002 and will be organised in association with The Australian. It will aim: (i)

to take stock of Australia’s progress on a range of economic and social criteria, e.g. productivity, inequality, unemployment and joblessness, job security, labour force skills and management quality;

(ii) to explore some of the major economic and social policy issues of the day; (iii) to examine the short, medium and longterm outlook for the economy and society; and (iv) to debate how the Australian economy and society and its institutions and policies can achieve both good economic outcomes and desirable social outcomes, including paying special regard to the worse off in society.

We hope that this conference will also help the pursuit of hard-headed but soft-hearted economic and social policy in Australia.

May 2001

Professor Peter Dawkins Ronald Henderson Professor and Director

News on Staff and Other Developments Adjunct Appointments In 2001 some new adjunct appointments have been made of senior academics, from other universities and from other departments at the University of Melbourne, who will conduct some of their research activities with the Melbourne Institute. The full list of our adjunct appointments and honorary fellows is Dr Ernst Boehm (University of Melbourne); Associate Professor Jeff Borland (University of Melbourne); Professor Derek Bosworth (UMIST); Professor Bruce Chapman (ANU); Professor John Creedy (University of Melbourne); Professor Alan Duncan (University of Nottingham); Dr Mardi Dungey (ANU); Professor John Freebairn (University of Melbourne); Professor Jonathan Kelley (ANU); Dr Mark Rogers (Oxford University); Professor Danny Samson (University of Melbourne); and Professor Boris Schedvin (University of Melbourne).

Business Manager Appointed In February this year Fiona Zammit was appointed to the newly created position of Business Manager of the Melbourne Institute. Her main functions as Business Manager are to manage the administrative Ms Fiona Zammit and technical support functions of the Melbourne Institute and to oversee the continual upgrading of the administration function. Prior to joining the Institute Fiona was employed as the Resources Manager in the Architecture, Building and Planning department of the University of Melbourne, and before that in a management role at Deakin University.

merce (Honours) degree from the University of Melbourne and a Master of Science (Economics) degree from the University of WisconsinMadison. Roger has submitted his PhD to the University of Melbourne.

New Administrative Assistant

Dr Guyonne Kalb

Mr Roger Wilkins

HILDA Database Manager Appointed Simon Freidin was appointed Database Manager for the HILDA survey project and commenced employment at the Melbourne Institute in early May 2001. Simon has an honours degree in behavioural science and a graduate diploma in Mr Simon Freidin computer science, both from La Trobe University, and has over 15 years experience in the management of complex data sources. His previous employment includes six years with the Australian Institute of Family Studies and seven years in the Department of Psychiatry at the University of Melbourne.

Two New Research Officers

Two New Research Fellows Guyonne Kalb and Rogers Wilkins have been appointed as Research Fellows. As foreshadowed in the last Newsletter, Guyonne Kalb joined the Melbourne Institute in January 2001 and is involved primarily in research on the economics of social policy. Guyonne has a PhD in Econometrics and was most recently employed at Monash University. Roger Wilkins joined the Melbourne Institute in March 2001 and is working in the Labour, Social and Fiscal Studies area as a Research Fellow. He has a Master of Com-

ing in the Business Cycles and Forecasting area.

He has an honours degree in economics from the University of New England and worked in research at that university for two years before joining the Melbourne Institute. Hsein Kew joined the Melbourne Institute on 30 April 2001 and will be working in the Labour, Social and Fiscal Studies area. Kew completed his honours degree in economics at the University of Melbourne last year and is enrolled to undertake a PhD. He will be working mostly on the MITTS model.

Penny Hope joined the administrative team of the Melbourne Institute in February 2001.

Penny provides support to the HILDA project, Centre for Business Cycle Analysis, and the Publications Manager, as well as reception and ad- Ms Penny Hope ministrative duties. She has an Arts degree and was most recently employed with a publications house and prior to this at Monash Medical Centre.

Research Fellow Awarded PhD Lei Lei Song, who joined the Melbourne Institute in December 2000, recently received confirmation that his PhD thesis entitled The Exchange Rate and Foreign Trade of China: 1980–1999 has been passed by the examin- Dr Lei Lei Song ers. Lei Lei will graduate in August.

Australian Economic Review Editorial Team

Mr Michael Chua

Mr Hsein Kew

Michael Chua and Hsein Kew have been appointed as Research Officers. Michael joined the Melbourne Institute in March 2001 and is work-

John Creedy has retired as an editor of the Australian Economic Review after 10 years of sterling service. We are pleased to welcome Mark Wooden as the new, third, editor. Steven King and David Johnson remain as the other joint editors and Nilss Olekalns is the editor of the ‘For the Student’ section. Nellie Lentini is the assistant editor.

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Labour, Social and Fiscal Program Household, Income and Labour Dynamics in Australia As reported in the last Newsletter, the Melbourne Institute and our partners in this consortium (Australian Council of Educational Research and Australian Institute of Family Studies) are conducting one of the most comprehensive longterm studies into Australian households ever undertaken in this country, the Household, Income and Labour Dynamics in Australia (HILDA) survey funded by the Department of Family and Community Services.

The project is progressing well, with the survey being conducted in two stages.

Stage 1 involves the development and refinement of the survey content and design (including pilot testing). It is an iterative and consultative process undertaken with FaCS and the broad government and research community. This stage is now well advanced and should be completed by the end of June.

The main achievement so far has been the design of the questionnaires, a household form to be completed by a reference person in each household, a personal form for each member of the household over 15, and a self-completion questionnaire also for each household member over 15. The design involved the setting up of four teams—income, labour, family and policy teams—each responsible for the relevant part of the questionnaire. There is also an advisory group, consisting largely of outside academics.

ACNielsen Pty Ltd won the tender to carry out the survey. Drafts of the questionnaire can be viewed on the HILDA website (http://www.melbourneinstitute.com/hilda/). These are now being piloted.

Stage 2 of the survey will involve three waves of data collection and preparation of data for research purposes. It is expected that the data will be made available to as wide a range of users as possible. Wave 1 of the data collection is expected to commence in September 2001, Wave 2 in September 2002 and Wave 3 in September 2003. We will keep you informed on future developments.

Empirical Studies of the Interaction of Labour Markets and Social Security (headed by Jeff Borland) • Reliance on income support • Effect of changes to activity test arrangements on exit from payments—A: mutual obligation • Effect of changes to activity test arrangements on exit from payments—B: intensive review • Effect of changes to activity test arrangements on exit from payments—C: job seeker diary • The impact of social policy initiatives on labour supply incentives: a review of the literature • Movement between payment types • Effect of Working Nation income test changes for unemployed people Behavioural Policy Modelling (headed by Peter Dawkins) • Effects of the new tax system: a policy simulation using the Melbourne Institute Tax and Transfer Simulator (MITTS) • Effects of the Working Nation social security reforms in July 1995: a policy simulation using MITTS • Analysis of incidence and trends in jobless families in Australia • Comparison of alternative specifications for the labour supply models in MITTS Family and Communities (headed by David Johnson) • Economic and sociological analyses of families: existing research findings • Social science analyses of communities: existing research findings • Family and community influences on ‘wellbeing’ • Neighbourhood and family effects on employment and employment aspirations • Work and family directions in the US and Australia • Attitudes to provision for old age • Understanding and improving data quality relating to low-income households

Social Policy Research Contract

Higher Education and Health Policy Forums in Australian Economic Review

As previously reported the Melbourne Institute has a large contract to undertake research for the Department of Family and Community Services over a four-year period (2001–2004). The work will be undertaken by three teams. Titles of projects approved for 2001 are:

The June and September issues of the Australian Economic Review will include Policy Forums on Financing Higher Education and on the Economics of Health and Health Policy, respectively. Bruce Chapman, Stephen King, Simon Marginson and Andrew Norton contributed to

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the Higher Education Forum, which will form the basis of discussions at our Melbourne, Sydney and Canberra Forums in June (see page 7).

The main contributors to the Health Forum include Jeff Richardson, Jane Hall and David Johnson. On 24 May a one-day conference (organised by the Melbourne Institute in association with the Health Economics Unit, CHPE, Monash University and the Centre for Health Economics Research and Evaluation, University of Sydney) was held at which health economists, other economists and relevant public servants discussed the papers that will be published in the September issue.

International Reform Monitor The Melbourne Institute is the Australian partner in an international forum for the discussion of interesting and current reforms in the fields of social policy, labour market policy and industrial relations. The forum is run by the Bertelsmann Foundation and provides the opportunity for international comparisons of experience and knowledge in social policy.

There are 15 members of the forum, all from developed countries in Western Europe and the Pacific rim. Members provide two reports each year on policy reforms in their country. These reports are summarised in a non-technical monograph aimed at a broad audience of policy makers, academics, public servants, business people and other interested persons. The publication is distributed within the member countries and is also available on the Internet at www.reform-monitor.org. It has proved to be a valuable means of comparing social policy in the member countries with over 80,000 visits to the web site.

The group has just held its annual meeting in London. David Johnson attended as the Melbourne Institute representative. The discussion centred on the future development of the forum.

The Bertelsmann Foundation expressed great satisfaction with the progress of the forum and funding is expected to be renewed for another period. A highlight of the meeting was a ‘fireside chat’ between two prominent English social science researchers, Lord Richard Layard, an economist and one of the main architects of the ‘third way’ approach of the current UK government to social and economic reform, and Lord Ralph Dahrendorf, a former director of the London School of Economics and Politics, advisor to government and prominent liberal social scientist.

Business Cycles and Forecasting Reading on the Economy

Photo by Adrian Hall Photography

What a difference a few months makes! In the final quarter of last year the Melbourne Institute along with many other forecasters was expecting a continuation of GDP growth in excess of 4 per cent, employment growth in excess of 2.5 per cent and the unemployment rate dropping below 6 per cent by the end of this year. Since then, of course, we have experienced a rather different set of outcomes and growth expectations have been generally revised downwards.

What has become increasingly clear in recent months is that two key influences have been operating simultaneously to produce a somewhat different outcome in Australia. First are the transitional effects of the new tax system and the Olympic games. Second is the longer term and more broadly based impact of the rise in world

of the state of the economy. Further, while it was generally recognised that the introduction of the GST and other tax changes distorted the timing of economic activity, there were few attempts by the Statistician to assess the magnitude of this distortion, or of the impact of the Olympics.

As to the future (assuming the data we are currently working off are not also dramatically revised), while the Westpac – Melbourne Institute leading index of economic activity has been falling for several months now, the rate at which it is falling has stabilised and in the latest month the index stabilised. Our assessment is that activity will remain weak for most of 2001.

The Impact of the Petrol Price Rise

As suggested above, we believe that the sharp rise in the international oil price since early 1998, which has been primarily manifest in the domestic price of petrol, has contributed significantly to the current slowdown in the Australian and world economies.

World oil prices rose by US$19 a barrel (around 132 per cent) between December 1998 and March this year.

Meanwhile the real price of automotive fuel to Australian motorists increased by 29 per cent between the March quarter 1999 and December quarter 2000. The current rise in petrol prices is proving to be more longMr Don Harding, Director of the Melbourne Institute Centre for lived than the similar rise that ocBusiness Cycle Analysis, speaking on the Australian economy at curred during the Gulf War shock in the Sydney Forum.

1991, and therefore the effects are likely to be more serious. oil prices. The transitional effects are judged While economists have long recognised that largely responsible for the contraction in growth commodity price rises can cause firms to raise in the December quarter last year. The high level prices relative to wages, so resulting in an aggreof oil prices, exacerbated by Australian dollar gate supply shock whereby the higher prices weakness, is largely responsible for the slowasked by firms result in a lower level of output, down that began in the first half of last year. our research also points to evidence of the existWhile the contraction is probably over, the slowence of a demand shock (see article by Don down is considered likely to continue for the rest Harding entitled ‘Macroeconomic Effects of Petof this year. rol Prices’ in the Mercer – Melbourne Institute Part of the explanation for the apparent sudQuarterly Bulletin of Economic Trends 1.01). denness of the shift in the economy lies with the Utilising Melbourne Institute household surofficial ABS statistics: annualised growth in the vey data to provide evidence of the proportion of first half of 2000 was massively revised (downhouseholds which are liquidity-constrained or wards) in the September and December quarter buffer-stock savers, the importance of automo2000 National Accounts, as was the original tive fuel to consumers, and the capacity of congrowth estimate for the September quarter when sumers to substitute away from petrol, we the December results were published in March conclude that it is likely the recent petrol price this year. Similarly, the labour force data have shock shifted both the aggregate demand and been dramatically revised on occasion. In other aggregate supply curves to the left. The leftward words the official data were giving a false picture

shift in the aggregate demand curve means that prices do not rise by as much as they would have under the case where the oil price shock affected aggregate supply only. So, incorporating the effects on demand can help us understand why prices have not risen by as much as expected given the size of the oil price rise.

Also using the responses of households that reported an increase in expenditure on fuel financed by cutting back expenditure on other goods and services, we estimate that the demand shock in Australia attributable to petrol price increases amounts to about $2.4 billion per year, or 0.6 per cent of private consumption.

This suggests that in the background, hidden by the GST-related gyrations and the artificial stimulus of the Sydney Olympics, there was a significant negative shock to aggregated demand attributable to the effect of the petrol price hikes on liquidity-constrained households. It also explains why inflation has not risen in response to the supply shock that was also created by the world oil price rise. Moreover, the oil price rise will have created comparable demand and supply shocks around the world, explaining the world slowdown and the failure of apparent inflation pressures to translate into inflation.

Business Economics Forums The 29 March Melbourne Institute Business Economics Forum provided a timely opportunity and venue to discuss the shift in the economic outlook in recent months.

As usual, speakers at this Forum included Peter Summers, who presented the Melbourne Institute’s macroeconomic forecasts, and Don Harding, who discussed the macroeconomic effects of the recent oil price shock, as outlined above. Guest speaker at the Forum was Saul Eslake, Chief Economist of the ANZ Bank, who gave his perspective on the economic state of play.

The 4 April Public Economics Forum in Canberra also included presentations on the economic outlook by the Melbourne Institute. Guest speakers included Chris Richardson, Director of Access Economics, who spoke about the economic situation and outlook, and Steven Kates, Chief Economist of the Australian Chamber of Commerce and Industry, who talked about the potential of business surveys as a guide to identifying economic trends.

These two Forums, as well as the inaugural Sydney Business Economics Forum (see page 1), were strongly attended. Details of the June Forums are on page 7.

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Enterprise Performance Enterprise and Workplace Focused Industrial Relations A major new research area this year is an ARC SPIRT-funded study of the impact of enterprise and workplace focused industrial relations (IR) on employee attitudes and enterprise performance. One aim of the study is to examine the factors that influence the corporate approach to industrial relations in large enterprises in Australia and to examine the effect of corporate approaches to industrial relations on profitability.

In addition, it will identify whether firms’ attitudes to IR are related to firm performance and will explore implied causal linkages.

Major researchers are the Melbourne Institute’s Mark Wooden and Professor Danny Samson from the University of Melbourne’s Department of Management. This project is being run in collaboration with IBISWorld, the Business Council of Australia and CEDA. This first stage of the study will involve a survey of senior managers in large Australian enterprises.

Benchmarking Innovation This research project, by Simon Feeny and Mark Rogers, empirically analyses the link between innovation and performance using a sample of large Australian firms, with a specific aim of developing benchmarking tools. Innovation is measured by firms’ investment in R&D and applications for patents, trademarks and designs.

An innovation index is constructed which incorporates a firm’s innovative activities into a single figure after accounting for firm size. The index provides a ranking of the most innovative firms in Australia. Firms which have a higher (and lower) than expected performance outcome from their innovative activities are also identified.

Enterprise Bargaining and Productivity The 1990s have seen bargaining, and more specifically enterprising bargaining, supplant arbitration as the dominant industrial relations paradigm in Australia. In large part, this change reflects widespread belief that enterprise bargaining would stimulate greater levels of productivity. Evidence in support of this link between enterprise bargaining and productivity, however, is both scant and unconvincing. Yi-Ping Tseng and Mark Wooden have revisited the relationship between enterprise bargaining and productivity using data from the Business Longitudinal Study.

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Estimation of a simple production function using a random-effects model revealed evidence of a strong contemporaneous relationship between registered enterprise agreements and productivity. Indeed, firms where all employees are on such agreements are estimated to have productivity levels about 10 per cent higher than comparable firms where employees are not covered by an enterprise agreement and are forced instead to rely on conditions specified in an industry award. However, despite this finding, it still proved impossible to establish a direct causal relationship between the introduction of enterprise agreements and subsequent productivity growth.

habit persistence, implying that ETRs converge monotonically towards the statutory rate of corporation tax.

Nominal Wage Flexibility Beth Webster who leads the Enterprise Performance area has also been working on projects related to the labour market. Two papers on nominal wage flexibility have been completed recently. The first paper by Yi-Ping Tseng examines Australian household data from over 4000 individuals to assess how downwardly flexible nominal wages have been during the period 1997 to 2000. The data indicate that there is considerable downward rigidity. Only 7.4 per

A Dynamic Panel Analysis of the Profitability of Tax Entities A study by Simon Feeny, Mark Harris and Joanne Loundes has investigated the determinants of profitability of Australian tax entities over the three-year period to 1996–97 for each of 91 threedigit ANZSIC industries. The theoretical model is based on that of Cowling and Waterson (1976). However, it is augmented by the inclusion of lagged profitability to allow for habit persistence in entity profitability. The so-called operaDr Yi-Ping Tseng and Dr Mark Harris tional Wansbeek-Bekker estimator is cent of workers who are still working the same used to control for endogeneity of this lagged dehours in the same job experienced a cut in pay pendent variable, whilst simultaneously contover the previous year. People in low-income rolling for observed and unobserved entity households, unskilled and part-time workers heterogeneity. Aggregate results suggest that and workers reliant upon the safety net are more profitability in the previous year, entity capital likely to have received a pay cut than others. intensity, and barriers to entry have the expected In the second paper, by Elizabeth Webster positive association with current profitability and Yi-Ping Tseng, this database is augmented measured by the price–cost margin. Entity marwith additional variables on the external labour ket share—and to a lesser extent concentramarket and social security payments. The aim is tion—is found to have a U-shaped relationship to investigate which factors have had a signifiwith profitability. cant influence on microeconomic wage growth over the past three years. The relative imporHabit Persistence in Effective Tax Rates tance of four factors is compared—outside incomes, demand for labour, workers’ relative Mark Harris and Simon Feeny have used adminbargaining strength and category of wage conistrative data from the Australian Tax Office to tract. Basic individual demographic characterismodel the effective tax rates (ETRs) of large Austics (partial substitute variables for outside tralian corporations. The extent to which there is incomes) and some indicators of workers’ barany habit persistence in ETRs is also examined. gaining power provided most of the explanation The results suggest that unobserved entity heterfor wage changes. Proxy variables for labour deogeneity is important in explaining ETRs. In mand, while significant and correctly signed, terms of observed heterogeneity, entity size, level were small in magnitude. Information on workof leverage, capital intensity, foreign income and place characteristics and the individual’s work R&D are all important explanators of ETRs. history were not available.

There is also evidence of a significant amount of

Inaugural Sydney Business Economics Forum (continued from page 1) Mr Bill Evans, General Manager of Economic Strategy and Planning at Westpac, also spoke at the Forum, commenting on the Melbourne Institute’s economic forecasts in particular and the macroeconomic outlook in general.

The Business Economics Forum was established in 1997 to provide business, government and the community with access to authoritative

and independent economic research and analysis, in the form of quarterly meetings in Melbourne, reports and publications, conferences and consultancies. The Public Economics Forum was established more recently in March 1999 and, with its meetings held in Canberra, has a greater public-policy orientation than the Business Forum (see page 8). In expanding these meetings to include Sydney, the Melbourne Institute hopes to extend its expertise and analy-

sis to a wider market and provide the opportunity for mutually beneficial interaction with government, business, community groups and academia in that city.

The Melbourne Institute was delighted with the response to its initial foray into the Sydney market for economic forecasting services and looks forward to a long and mutually beneficial relationship with our clients there in the future.

Forthcoming Events Melbourne Institute Forums, June 2001 The special topic to be addressed at the three June Forums will be Financing Higher Education. The dates and guest speakers for the Forums are: Tuesday 5 June 2001, 7.30am – 9.00am, Hotel Sofitel, Melbourne Professor Stephen King (University of Melbourne), Professor Bruce Chapman (Australian National University), and Professor Alan Gilbert (Vice-Chancellor, University of Melbourne) Thursday 7 June 2001, 12.00 noon – 2.00pm, Wentworth Hotel, Sydney Professor Bruce Chapman (Australian National University), Professor John Ingleson (University of New South Wales), and Mr Andrew Norton (Centre for Independent Studies) Tuesday 12 June 2001, 12.00 noon – 1.45pm, Old Parliament House, Canberra Professor Stephen King (University of Melbourne), Professor Bruce Chapman (Australian National University), Professor Alan Gilbert (Vice-Chancellor, University of Melbourne), and Professor Don Aitken (Vice-Chancellor, University of Canberra).

For information on Melbourne Institute Forums, please contact Karen Roe on (03) 8344 7885.

Downing Lecture on Conflicts between Work and Family, June 2001 Tuesday 19 June 2001, 6.00pm, Copland Theatre, Economics and Commerce Building, The University of Melbourne. This lecture is free and open to the public.

Robert Drago, Professor of Labor Studies and Women’s Studies at the Pennsylvania State Uni-

versity, will present the 15th Downing Lecture at the University of Melbourne, on 19 June 2001.

The topic will be ‘Economics, Feminism, and Conflicts between Work and Family’. Professor Drago will be based at the Melbourne Institute during his stay at the University of Melbourne.

The abstract of the Downing Lecture is as follows. Conflicts between work and family exist because the hours many employees work are inconsistent with time commitments to children, and Professor institutional supports are Robert Drago not in place to fill the resulting care gap. After describing these conflicts and categorising potential policy responses, Professor Drago reviews the writings of 19th and 20th century feminists, economists, and feminist economists, to capture their understanding of these issues. The default solution to work/family conflict—women working the second shift of childcare in addition to paid employment—is the logical outcome of much though not all of these writings. By the late 1970s, an understanding of the default solution emerges first among feminist economists and then among mainstream economists. By the 1990s, the field of work and family comes into its own right, involving a far broader group of academics. Although this group is very heterogeneous, a consensus seems to be forming around a mixture of public, corporate, community and family strategies to resolve work/family conflicts.

Conference on Business Cycles and Monetary Policy, November 2001 The Melbourne Institute will host a two-day conference on international business cycles and

their impact on Australia, on 8–9 November 2001. A particular focus of the conference will be the role of domestic monetary policy in an international context. In addition, plenary sessions are planned for issues related to what academics and business economists can learn from each other; the dating of business cycles; and the use of ‘real-time’ (that is, unrevised) data in forecasting and business cycle analysis. The conference will be of interest to academics, practitioners and policy makers alike.

Melbourne Institute Economic and Social Outlook Conference (in association with The Australian), April 2002 The Melbourne Institute is making plans for a major conference to be held on 11 and 12 April 2002. The Melbourne Institute Economic and Social Outlook Conference will, as its title implies, encompass a major review of the medium to longer term economic and social outlook for Australia. It will be run in association with The Australian. The conference will take a more broad and longer term perspective of the economic outlook than do our regular quarterly Forums. The aims of the conference were outlined in the Director’s Letter on page 2.

Thus, this conference should be of considerable interest to all those interested in where we are and where we are going from a more structural and fundamental perspective—and not just what’s happening in the short to medium term—including business leaders, policy makers, social commentators and community groups. In addition to analysis of such matters by the Melbourne Institute the conference will include a number of guest speakers, including some from overseas. Further details will be announced as they become available.

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Melbourne Institute Publications Journals The Australian Economic Review (Australia’s leading economic policy journal; quarterly) Australian Social Monitor (6 issues per year) Mercer – Melbourne Institute Quarterly Bulletin of Economic Trends Macroeconomic and Social Indicators Westpac – Melbourne Institute Indexes of Economic Activity (monthly) Westpac – Melbourne Institute Survey of Consumer Sentiment (monthly) Melbourne Institute Survey of Consumer Inflationary Expectations (Sponsored by the Reserve Bank; monthly) Westpac – Melbourne Institute Survey of Consumer Sentiment: NSW, Vic., Qld, WA (quarterly) ING– Melbourne Institute Household Saving Report (quarterly) Melbourne Institute Wages Report (quarterly) Poverty Lines: Australia (quarterly) Recent Working Papers Most of our working papers can be downloaded from the Melbourne Institute website. A list of the most recent working papers follows: 13/00 Habit Persistence in Effective Tax Rates: Evidence Using Australian Tax Entities

by Mark N. Harris and Simon Feeny

14/00 The Effects of Wages on Aggregate Employment: A Brief Summary of Empirical Studies by Elizabeth Webster 15/00 Labour Market Models of Unemployment in Australia

by Jeff Borland and Ian McDonald 16/00 Disaggregated Models of Unemployment in Australia by Jeff Borland 17/00 Cross-Country Studies of Unemployment in Australia

by Jeff Borland and Ian McDonald 18/00 The Labour Market in Macroeconomic Models of the Australian Economy

by Jim Thomson 19/00 Labour Market Analysis with VAR Models by Peter Summers 20/00 Foreign Ownership, Foreign Competition and Innovation in Australian Enterprises

by Craig Lofts and Joanne Loundes 21/00 Consumer Sentiment and Australian Consumer Spending

by Joanne Loundes and Rosanna Scutella 22/00 A Dynamic Panel Analysis of the Profitability of Australian Tax Entities

by Simon Feeny, Mark N. Harris and Joanne Loundes 23/00 The Determinants of Relative Wage Change in Australia

by Elizabeth Webster and Yi-Ping Tseng

1/01 An Estimate of the Equity Effects of Labour Market Programs

by Elizabeth Webster and David Johnson 2/01 The Effect of Diversification on Firm Performance by Mark Rogers 3/01 The Growth of Jobless Households in Australia by Peter Dawkins, Paul Gregg and Rosanna Scutella 4/01 Individuals’ Wage Changes in Australia 1997–2000 by Yi-Ping Tseng Books, Monographs, Reports Melbourne Institute Annual Report and Outlook How Big Business Performs: Private Performance and Public Policy (contact Allen & Unwin) R&D and Intellectual Property Scoreboard 2000: Benchmarking Innovation in Australian Enterprises The Contours of Restructuring and Downsizing in Australia Policy Implications of the Ageing of Australia’s Population (contact the Productivity Commission) The Economics of Intangible Investment (contact Edward Elgar) For further information or a copy of the publications brochure please contact Lara Hammond on (03) 8344 3701.

Melbourne Institute Business and Public Economics Forums The Melbourne Institute operates three Forums. The Business Economics Forum (Melbourne) and, from 2001, the Business Economics Forum (Sydney) are held quarterly and focus on the economic outlook and a range of special economic topics. The Public Economics Forum is oriented towards public policy and held each quarter in Canberra.

Different packages of benefits are available to members of the Forums. Three levels of membership are available to Forum members, Gold, Associate and Individual, each contain-

ing a different package of benefits. All memberships include attendance at the quarterly economic briefings and a copy of the Mercer – Melbourne Institute Quarterly Bulletin of Economic Trends. The total package of potential benefits is summarised below: • invitations to quarterly economic briefings held in Melbourne and Sydney or the quarterly luncheon forums held in Canberra • publications of the Melbourne Institute

• discount registration at public conferences (two per year are planned) • access to consulting by Melbourne Institute researchers • other benefits negotiable For further information on either the Melbourne Institute Business Economics Forums or the Melbourne Institute Public Economics Forum, please contact Karen Roe on (03) 8344 7885.

Enquiries relating to the Melbourne Institute may be directed to Melbourne Institute of Applied Economic and Social Research The University of Melbourne, Victoria 3010 Australia Phone: +61 3 8344 5330 Fax: +61 3 8344 5630 Email: melb.inst@iaesr.unimelb.edu.au For further information on the Melbourne Institute and its products and services, log on to http://www.melbourneinstitute.com

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