A Characterization of Australian Unemployment Compensation: An Analysis of Labour Market Adjustment*

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Abstract
This paper uses a labour contracting framework to analyze the microeconomics of the Australian unemployment compensation system. We find that employers adjust labour inputs by using layoffs rather than shortened workweeks or work‐sharing during economic recessions. Increases in government benefits tend to reinforce this result Countervailing influences are shown to be the severity of the income test applying to benefits eligibility and the Family Allowance Supplement in its role as supplementing the income of low‐income families.