Sectoral Employment Dynamics in Australia

In the aftermath of the covid-19 pandemic, the prevention of further decline in aggregate employment and turning it around are high on the agenda of policymakers. To this end, it is imperative to have a disaggregated model of employment, given the unequal effects of covid-19 on employment in different sectors of the economy. In this paper we develop a multivariate time series model of employment in 19 sectors of the Australian economy. We provide the predictions of this model conditional on various scenarios that are based on the most recent quantitative information about sectoral employment in Australia. We estimate that the drop in total employment in the second quarter of 2020 will be in between 7 and 13 percentage points, compared to the second quarter of 2019. We also use this model to determine the long-run effect of a 1% increase in economic activity in any chosen sector on aggregate employment. Our findings point to manufacturing and construction sectors as those that might generate the largest positive spillovers for the rest of the economy. Moreover, we provide an interactive web-based app as well as an interactive spreadsheet that produce our model’s 5-year forecasts based on any user-specified scenario for the current and following three quarters. As the covid-19 pandemic evolves and some restrictions are safely lifted or other restrictions become necessary, the sectoral employment multipliers together with the interactive tools produced here will provide useful information for policymakers.