#17 September 2007 - Melbourne Institute News

Melbourne Institute News September 2007 ISSN 1442-9500 (print)

ISSN 1442-9519 (online)

Print Post Approved PP381667/01204

Issue 17

A Message from our Director I am delighted to join the Melbourne Institute. We have a team of quality people who are committed to conducting high quality research that advances our understanding of our economy and society. Because of this, the Melbourne Institute has made a major contribution to a number of important public policy debates over the years. What attracted me to this job is the opportunity to assist the Melbourne Institute to continue to play just such a role.

Professor Stephen Sedgwick, Director of the Melbourne Institute

2007 HILDA Conference We look back at the HILDA Conference which took place in July, providing a summary of two of the papers contributed.

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PhD Program An overview of the Melbourne Institute’s ever growing and successful PhD program.

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MABEL MABEL is our new longitudinal survey which is researching the changes in the working lives of Australian doctors and how that is influencing the provision of healthcare.

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At this early stage I am very much in listening mode.

Over the next few months I hope to consult widely to gain feedback about the Melbourne Institute and solicit views about possible new directions for it. While preserving our traditional economic surveys and industry and labour market work, the Melbourne Institute has grown strongly in recent years and taken on a broader range of functions and specialisations. The work in support of the HILDA Survey is the most obvious example. We have also begun to amass good critical mass in health economics and, more tentatively, education and skills formation.

After the external consultations I plan to revisit our strategic plan with our staff and the Advisory Board.

This will help us to identify what more should be done to build on our strengths and what additional capabilities, if any, we should aim to build in the years ahead. A key issue will be to establish what areas of research are not currently well serviced by the academic community. What additional research now, for example, would be relevant to the public policy debates we should be having in a couple of years time? Of course, picking the next big issue in advance of it becoming popular is no easy task and may not be achievable; but it would be nice to try and succeed!

As part of that process, I would very much welcome views on that subject. If you have ideas to contribute, please drop me a line to s.sedgwick@unimelb.edu.au.

www.melbourneinstitute.com Melbourne Institute of Applied Economic and Social Research - Page 1

2007 HILDA Conference The 2007 HILDA (Household, Income and Labour Dynamics in Australia) Survey Research Conference, hosted by the Melbourne Institute and the Department of Families, Community Services and Indigenous Affairs was held at the University of Melbourne on Thursday July 19 and Friday July 20.

The conference was well attended as was the Data User Training session the day prior.

The HILDA Conference boasted an excellent diversity of high quality speakers, both national and international, and covered areas as diverse as workers and volunteers, who’s doing the housework, levels of satisfaction, poverty, contraceptive practices and much more.

The following two articles are based on presentations from the HILDA Conference.

Papers from the HILDA Conference are available for download from www.melbourneinstitute.com/hilda

Casual Employment Leads to Permanent Employment in the Future Casual employment increases your probability of securing permanent employment in the future according to new research at the Melbourne Institute.

Dr Hielke Buddelmeyer presented the research paper, ‘Transitions from Casual Employment in Australia’ at the HILDA Conference at the University of Melbourne.

The paper, which was co-written by Dr Buddelmeyer and Professor Mark Wooden, shows that on average 23 per cent of casual employees in one year will be in non-casual employment the following year.

“After three years this will have risen to 40 per cent” said Dr Buddelmeyer.

Nevertheless, casual employees are still at much greater risk of moving out of the labour force or entering unemployment than non-casual employees. But according to Dr Buddelmeyer, “the proportion of casual employees who are in unemployment one year later is quite small – just four per cent”.

true when using different methods and assumptions to address this issue”.

The paper also shows that for women spells of casual employment, relative to unemployment, increase the probability of being employed in the future. Contrary to the case for males though, spells of casual employment do not increase the probability of being employed non-casually the following year, compared to being unemployed. The authors hypothesise that this may have to do with how employers regard periods of nonemployment for women. They suffer less of a stigma effect from unemployment than men when it comes to gaining employment.

Commenting on this, co-author Professor Wooden made the following observation. “In general, most employers when hiring will favour someone currently in work over someone from the unemployment pool. Unemployment, however, is likely to be seen as a far worse signal for men where working is the norm. In contrast, and despite marked changes in attitudes and behaviour, women are still often seen as the primary carer and home-maker.

As a result, episodes of not working are seen by many employers as acceptable.”

Dr Buddelmeyer says that “for men a spell of casual employment always increases the probability of being employed non-casually the following year, compared to being unemployed. This finding is very robust and holds

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Retirement in Australia: A Closer Look at the Financial Incentives by Diana Warren and Umut Oguzoglu immediately.

We estimate the impact of this financial incentive on retirement decisions by modeling the conditional probability of exit from employment, controlling for other characteristics such as age, health, education, work experience, carer responsibilities, home ownership and partner’s employment status. We find that the effect of the financial incentive on the probability of retiring are statistically significant for men, but not for women.

In other words, for men but not women, the desire to maximise lifetime income appears to have a significant effect on decision-making.

In Australia, labour force participation among older people, particularly men over the age of 55, has been declining over the last 30 years.

Previous research has found that in many OECD countries, the retirement income system actually provides incentives for older workers to retire early rather than remain in the work force. In making the decision about when to retire, mature workers face two competing sets of financial incentives: the longer they remain in the labour force, the larger their retirement income will usually be when they do retire, but more years of work, while adding to lifetime earnings, also mean fewer years of retirement. If the increase in total lifetime income due to postponement of retirement is not large enough to offset the shorter period of retirement, then there is a financial incentive to exit the labour force. Hence, our main hypothesis is that, in each observed period, the probability of mature age people working will be influenced by the strength of the financial incentive to do so.

Turning to non-financial variables, for both men and women owning their home outright increased the probability of retiring, as did having a partner who had already left the workforce. While having resident dependent children had a negative influence on leaving the workforce. For men, a striking result concerns the effect of health. Having a long-term health condition or disability which has lasted for six months or more is the variable most strongly related to the decision to exit the labour force. These results suggest that, keeping other things equal, having a long-term health condition or disability increases the probability of retirement by around 9 per cent. It is also the case that men with more years of work experience tend to stay in work longer than those who have less work experience. For women, ‘family’ variables appeared to be more important than for men. Having a partner who is not in the labour force increases the probability of retiring by about 8 per cent. Furthermore, women with higher levels of job satisfaction were more likely to remain in the labour force.

When those who have already reached age pension eligibility age are considered separately, the financial incentives to retire for men are stronger than before, indicating that, for men who are eligible to receive the age pension, there are strong incentives not to continue in paid work past age pension eligibility age.

Using data from the first five waves of the HILDA Survey, we identify the financial incentives present in the Australian retirement income system for men and women between the ages of 55 and 70 by calculating the ‘option value’ of continuing to work – the maximum possible gain in total utility (from labour income and retirement income) over a persons remaining lifetime if they continue to work until a later date rather than retiring

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PhDs In The Spotlight The Melbourne Institute is proud to have excellent academic and professional staff. In addition, we have a very successful PhD program.

Social Research, a PhD ‘top-up’ scholarship is available for each year of the remainder of their candidature. The value of the scholarship is $5,000 per annum.

More information is available from: www.melbourneinstitute. com/study “I am working on my first major ARC grant and now contemplating about supervising new PhD students alongside those who supervised mine. It feels great!.”

PhD Program The PhD program at the Melbourne Institute has two components. In the first semester of the candidature, all PhD students take the core macroeconomics, microeconomics and econometrics subjects offered by the Department of Economics. In the second semester, a PhD candidate would normally take 3 electives that are relevant to their area of research.

The second component of a PhD at the Melbourne Institute is that the PhD candidate works as an integral member of a research team in one of the Melbourne Institute’s core areas.

The Melbourne Institute actively encourages and funds post graduate students to present their work at national and international conferences.

Dr Rosanna Scutella, Research Fellow, Melbourne Institute of Applied Economic and Social Research, Former PhD student (2005) For further information contact: Professor Guay Lim, Academic PhD Co-ordinator, Melbourne Institute.

Melbourne Institute Scholarships For those who are successful in applying for a Melbourne Research Scholarship (domestic or international) or Australian Postgraduate Awards, and who are enrolled with the Melbourne Institute of Applied Economic and

Australian Research Council (ARC) Grant Successes The Melbourne Institute is pleased to announce the success of two ARC Grant applications in the recently announced results.

ARC Discovery Grant Project Title: ‘Effects of Private Health Insurance on Health Care Usage and Health Outcomes in Australia’ Researchers: Dr Jongsay Yong (Melbourne Institute, The University of Melbourne); Dr Alfons Palangkaraya (Melbourne Institute, The University of Melbourne); Professor John Freebairn (The University of Melbourne) Funding received for 2008 – 2010 from the ARC of $107,829 ARC Linkage Grant Project Title: ‘Approved Ageing Baby Boomers in Australia (ABBA): Informing Actions For Better Retirement’ Researchers: Professor Hal Kendig (The University of Sydney); Dr Yvonne Wells (La Trobe University); Professor Mark Wooden (Melbourne Institute, The University of Melbourne); Dr Kathleen O’Loughlin (The University of Sydney); Professor David De Vaus (La Trobe University) Partner Organisations: National Seniors Australia and AARP Funding received for 2008 – 2010 from the ARC of $475,662 Page 4 - Melbourne Institute of Applied Economic and Social Research

Australian Economic Review The September issue of the Australian Economic Review includes topics in the Policy Forum on education and skill mismatches in the labour market.

Articles in the September 2007 issue of the Australian Economic Review are as follows.

This Policy Forum originates from ‘Education and Skill Mismatches in the Labour Market’, a workshop held at the Melbourne Institute in May 2007.

‘The Growth of House Prices in Australian Capital Cities: What Do Economic Fundamentals Explain?’, Glenn Otto

Contributed Articles

‘Providing Duty-Free Access to Australian Markets for Least-Developed Countries: A General Equilibrium Analysis’, Xiao-guang Zhang and George Verikios

Professor Kostas Mavromaras, head of the Melbourne Institute’s Labour, Economic and Social Policy area has written the Editor’s Introduction along with the Melbourne Institute’s Dr Seamus McGuiness. An edited summary of the article follows.

‘On the Effects of Inflation Shocks in a Small Open Economy’, Sushanta K. Mallick and Mohammed Mohsin

The acquisition and maintenance of education and skills will be one of the main determinants of how the Australian economy develops in an increasingly competitive global environment.

‘Strategic Interaction amongst Australia’s East Coast Ports’, Flavio M. Menezes, Marcin Pracz and Rod Tyers

Not unlike many other developed economies, Australia exhibits the paradoxical coexistence of (i) persistent skills shortages (that is, employers not being able to hire employees with appropriate qualifications and skills) with (ii) persistent skills underutilisation (that is, employees not being able to use their qualifications and skills to their full potential).

In Australia and other developed economies the debate about the apparent mismatch between qualifications and skills offered by employees and qualifications and skills required by employers is taking place in an environment of solid economic growth and increasing participation in education and in the labour force.

There is a large literature in this area which offers several competing theoretical explanations with no clear agreement across the profession. There is also evidence of a large number of empirical regularities in several countries; however, when it comes to the crunch there is a dearth of unambiguous and solid policy direction (contributors to the Forum give brief accounts).

Policy Forum: Education and Skill Mismatches in the Labour Market ‘Education and Skill Mismatches in the Labour Market: Editors’ Introduction’, Kostas Mavromaras and Seamus McGuinness ‘Overeducation in the United Kingdom’. Peter J. Sloane ‘Overeducation and Undereducation in Australia’, Paul W. Miller ‘Skill Mismatch and Training in Australia: Some Implications for Policy’, George Messinis and Nilss Olekalns ‘Overskilling in the Australian Labour Market’, Kostas Mavromaras, Seamus McGuinness and Mark Wooden Data Surveys ‘The 2002 National Aboriginal and Torres Strait Islander Social Survey’, Boyd H. Hunter For the Student ‘Tax Revenues and Fiscal Drag: An Introduction’, John Creedy and Norman Gemmell

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MABEL — Medicine in Australia: Balancing Employment and Life when to leave the medical workforce and retire. These decisions have important implications for the populations access to health care and therefore their health status and the quality of care received.

The research will examine the changing patterns of doctors working lives over time in order to better understand doctor shortages and surpluses and the pivotal role of doctors in the health care system. Changes in doctors family circumstances, job satisfaction, earnings and the nature of their work will be examined in order to determine the most effective policy responses for maintaining the size, motivation and productivity of the trained medical workforce. The research will provide a rigorous analysis of the decisions which underlie the workforce distribution and work patterns of doctors.

The survey results will provide important information in support of future policy development and evaluation.

A leading team of health economists at the Melbourne Institute has begun work on a new longitudinal survey.

The survey, ‘Medicine in Australia: Balancing Employment and Life’ (MABEL) will improve understanding of how changes in the working lives of Australian doctors are influencing the provision of healthcare.

The health workforce is now a key focus of government policy. The ever-increasing demand for health care, the ageing of the medical workforce, the increase in the number of women entering medicine and changes in doctors preferences in relation to their work life balance, all have an impact on the ability of the health care system to provide high quality and accessible health care. Despite this, there is little knowledge or understanding of how and why doctors make decisions about such things as how many hours they work, their location of work (including decisions about working in rural and remote areas) or

“It’s about time that the analysis of medical workforce shortages and the development of policy is underpinned by some strong economic evidence. There has been very little rigorous research within Australia, and certainly non with an economics focus” says Professor Tony Scott, head of the Survey.

“MABEL will provide a long term resource for research in the health workforce area in Australia. The research will not only help with policies to improve the working lives of doctors, but at the same time to improve access to health care and population health” he says.

The MABEL Australian Longitudinal Survey of Doctors (ALSD) will track a random stratified sample of around 5,500 doctors over an initial four-year period. This will include GPs, private specialists, hospital doctors and doctors in specialist training. The first wave of the survey is planned for the first half of 2008.

MABEL is funded by the National Health and Medical Research Council Health Services Research Program.

Further information can be found at www.melbourneinstitute.com or www.mabel.org.au

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Melbourne Institute Economics Forums

The Melbourne Institute Economics Forums held in September focussed on the Australian economy.

With speakers from the University of Melbourne, National Australia Bank, Commonwealth Bank of Australia and the Australian Industry Group, the Melbourne Institute Economic Forums for September, held in Melbourne and Canberra, provided insights into the current and future strength of the Australian economy.

The forum also highlighted the risks that are likely to emerge in the future.

Melbourne – Thursday 6 September Chair: Mr Tony Cole, Principal-National Practice Leader, Mercer Investment Consulting Speakers: Mr Alan Oster, Chief Economist, National Australia Bank

“While many of the fundamentals are very favourable, potential capacity constraints, turbulence in the international credit markets and the demands of good monetary policy throw up some intriguing policy conundrums” says Professor Stephen Sedgwick, Director of the Melbourne Institute.

“These forums presented a timely opportunity to look again at prospects for the economy and their implications for economic policy” he said.

These forums presented an overview of the state of the Australian economy, and some forecasts and implications for Australian industries.

Speakers discussed an array of questions. Is the Australian economy strong? What are its growth prospects? Is it operating at full capacity? Can the unemployment rate fall further? Are there serious inflationary pressures and will there be another interest hike in the next term?

Mr Tony Pensabene, Group Associate Director, Economics and Research, Australian Industry Group Professor Guay Lim, Professorial Research Fellow, Melbourne Institute Canberra – Thursday 11 September Chair: Dr Ken Henry, Secretary, Department of the Treasury Speakers: Mr Michael Blythe, Chief Economist, Commonwealth Bank of Australia Mr Tony Pensabene, Group Associate Director, Economics and Research, Australian Industry Group Professor Guay Lim, Professorial Research Fellow, Melbourne Institute For information on upcoming forums and past presentations, please visit our website www.melbourneinstitute.com

Upcoming Forums The next Melbourne Institute Economic Forums will be held in November.

Canberra – Tuesday 27 November 2007, 12.00 – 1.45pm at the Hyatt Hotel.

Melbourne – Thursday 29 November 2007, 12.30 – 2.00pm.

For further details, please check our website www.melbourneinstitute.com or contact Penny Hope, Functions Manager on 03 8344 2151.

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Recent Melbourne Institute Working Papers 26/2007 – ‘In the Shadow of the China–Australia FTA Negotiations: What Australian Business Thinks about IP’, Anne Leahy, Donald MacLaren, David Morgan, Kimberlee Weatherall, Elizabeth Webster and Jongsay Yong 25/2007 – ‘Co-movement and Integration among Developed Equity Markets’, Sarantis Tsiaplias 24/2007 – ‘Retirement in Australia: A Closer Look at the Financial Incentives’, Diana Warren and Umut Oguzoglu 23/2007 – ‘The Macroeconomic Content of Equity Market Factors’, Sarantis Tsiaplias 22/2007 – ‘Permanent Structural Change in the US Short-Term and Long-Term Interest Rates’, Chew Lian Chua and Chin Nam Low 21/2007 – ‘Comparing Welfare Change Measures with Income Change Measures in Behavioural Policy Simulations’, John Creedy, Nicolas Hérault and Guyonne Kalb 20/2007 – ‘Paid Annual Leave and Working Hours’, Mark Wooden and Diana Warren 19/2007 – ‘The Changing Distribution of Working Hours in Australia’, Mark Wooden and Robert Drago 18/2007 – ‘A Metropolis-in-Gibbs Sampler for Estimating Equity Market Factors’, Sarantis Tsiaplias 17/2007 – ‘Union Wage Effects in Australia: Are There Variations in Distribution?’ Lixin Cai and Amy Y.C. Liu Working papers can be downloaded from www.melbourneinstitute.com/publications/working

Conferences Melbourne Institute academic staff are constantly active in knowledge transfer throughout the world. The majority of our staff presented at a number of conferences over the last few months. Most notably are the large number of staff who presented at the 36th Australian Conference of Economists and the 29th Australian Conference of Health Economists in Brisbane. A list of Melbourne Institute speakers is included below.

The 36th Australian Conference of Economists (Hobart), 24 – 26 September Mr David Black, Dr Hielke Buddelmeyer, Dr Michael Chua, Dr Nicolas Hérault, Dr Sung-Hee Jeon, Professor Kostas Mavromaras, Dr Yi-Ping Tseng, and Dr Jongsay Yong.

The 29th Australian Conference of Health Economists (Brisbane), 27 – 28 September Professor Kostas Mavromaras, Professor Tony Scott, and Dr Julia Witt.

Melbourne Institute News Views expressed by the contributors to Melbourne Institute News are not necessarily endorsed or approved by the Melbourne Institute. Neither the Melbourne Institute nor the Editor of Melbourne Institute News accepts any responsibility for the content or accuracy of information contained in this publication. Editor: Laura A’Bell, tel: 8344 2154, fax: 8344 2111, email: labell@unimelb.edu.au. Contributors: Dr Hielke Buddelmeyer, Dr Umut Oguzoglu, Professor Tony Scott, Professor Stephen Sedgwick, Ms Diana Warren, Professor Mark Wooden.

Level 7, Alan Gilbert Building, The University of Melbourne P: (613) 8344 2100 F: (613) 8344 2111 www.melbourneinstitute.com