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The Australian government introduced three major private health insurance policy initiatives in recent years. These are, in chronological order, (i) the Private Health Insurance Incentives Scheme (PHIIS), which imposes a tax levy on high-income earners who do not have PHI, and provides a means-tested subsidy schedule for low-income earners who purchase PHI; (ii) a 30% premium rebate for all private health insurance policies to replace the means-tested component under PHIIS; and (iii) Lifetime Health Cover, which permits a limited form of age-related risk rating by insurance funds. Together, these policy changes have been effective in encouraging the uptake of PHI; the percentage of the population covered by PHI rose from 31% in 1999 to 45% at the end of 2001. The difficult issue, however, is in disentangling the effects of the three policy changes, given that they were introduced in quick succession. This paper attempts to evaluate the effect of Lifetime Health Cover using a regression discontinuity design, an approach that makes use of cross-section data that allows the effect of Lifetime Health Cover to be isolated via local regression. The results suggest that the importance of Lifetime Health Cover appears to be grossly over-rated in previous studies. Our estimates indicate that it accounts for roughly 30% to 44% of the combined effects of all the policy initiatives introduced in the late 1990s. While these figures suggest that its effect is clearly significant, it is nonetheless nowhere near the effect often associated with Lifetime Health Cover.
This paper addresses the need for a measure of the uncertainty that is associated with the results calculated through tax policy behavioural microsimulation modelling. Deriving the analytical measure would be extremely complicated. Therefore, a simulated approach is proposed which generates a pseudo sampling distribution of aggregate measures based on the sampling distribution of the estimated labour supply parameters. This approach, which is very computer intensive, is compared to a more time-efficient approach where the functional form of the sampling distribution is assumed to be normal. The results show that in many instances the results from the two approaches are quite similar. The exception is when aggregate measures for minor types of payments, involving relatively small groups of the population, are examined.
In this paper, we identify three policy instruments governments have at their disposal to affect the power of patent rights to prevent imitation: the size of the inventive step used to make the patent granting decision, the rigour of the patent examination process and the predisposition of the courts to affirm the patent office’s decision. We develop a simple framework to analyse the effects of changing these policy instruments on ex ante investment in invention in the light of recent concerns about the potential effects of socially undesirable patents.
This paper evaluates the effects of budget consolidation on the Australian economy in the 1990s by using a modified version of TRYM. By identifying the effects on long-term interest rates of the expected reduction in budget deficits in the 1996/97 financial year, the paper simulates the model for would-be impacts on the economy, had interest rates not fallen due to no budget consolidation. It is found that the program of budget consolidation did have a sizable impact on the economy, raising GDP by up to three quarters of a percentage point and reducing unemployment by 0.3 percentage points in two to three years.
Outsourcing the provision of traditionally publicly-provided services has become commonplace in most industrialized nations. Despite its prevalence, there still is no consensus in the academic literature on the magnitude (and determinants) of expected cost savings to the government, nor the sources of those savings. After articulating the differences between outsourcing and privatization, this article considers the arguments for (and against) outsourcing and then examines the empirical evidence pertaining to whether any observed savings occur and whether they persist over time. In addition, we examine the existing evidence for the "redistribution hypothesis" and the "quality-shading hypothesis", which critics have used to argue that outsourcing may result in lower government expenditure, but it does so by lowering wages and conditions for employees and lower quality services. Finally, we consider the impact of contract design on outsourcing outcomes. While the nature of the risk-incentive trade-off is well-known in the contract theory literature, some new empirical work has explored the application of this framework to outsourcing in order to understand the impact of the risk premium on outsourcing outcomes.
This paper reviews the Australian evidence on the presence of chronic shortages of mathematics and science teachers and on the loss of excellent teachers from the classroom. Although there are no rigorous Australian studies on these issues, the best available evidence suggests that these problems exist. Overseas information suggests that chronic shortages occur because fewer science and mathematics graduates, compared to humanities and social science students, are attracted to the tasks involved in teaching children. Attraction is a matter of degree however, and higher earnings can be used in order to attract more of the scarce mathematics and science graduates, who also have an aptitude towards teaching, to a teaching career. Higher earnings can also be used to reduce attrition of the most able teachers from all of the discipline areas.
This paper traces the innovation pathways of new creations from R & D activity through to intellectual property (IP) applications using enterprise panel data from 1989 to 2002. Our estimation method explicitly addresses the selection issues associated with missing R&D data which is a common problem among this type of data set. We find that R&D activity is a highly path dependent process that relies heavily on firm specific effects. These firm specific effects were subsequently found to be correlated with managerial style – more aggressive and intuitive managers have higher R&D ceteris paribus – and extensive use of incentive schemes for employees within the firm. In addition, we find that R&D is higher when the previous year’s enterprise debt ratio is lower, the speed of technological change is faster, the firm’s ability to absorb knowledge spillovers is greater and the product market is less contestable. Furthermore, these firms appear to be using the various methods of appropriation, IP and non-IP, as complementary packages to capture the quasi-rents from previous R&D expenditure rather than as substitutes.
This paper investigates the use of sample reweighting in a behavioural tax microsimulation model, to examine the implications for government taxes and expenditure of population ageing in Australia. First, a calibration approach to sample reweighting is described, producing new weights which achieve specified population totals for selected variables, subject to the constraint that there are minimal adjustments to the weights. Second, the performance of the Australian Bureau of Statistics’ (ABS) weights provided with the 2001 Survey of Income and Housing Cost (SIHC) was examined and it was found that reweighting does not improve the simulation outcomes for the 2001 situation, so the original ABS weights were retained for 2001. Third, the implications of changes in the age distribution of the population were examined, based on population projections to 2050. A ‘pure’ change in the age distribution was examined by keeping the aggregate population size fixed and changing only the relative frequencies in different age-gender groups. Finally, the effects of a policy change to benefit taper rates in Australia were compared for 2001 and 2050 population weights. It is suggested that this type of exercise provides an insight into the implications of changes in the population on government income tax revenue and social security expenditure, indicating likely pressures for policy changes.
This report investigates the effects of family background on men’s and women’s labour force participation and on the number of hours that they work. It uses the largest dataset ever brought to bear on this topic in Australia, the combined set of 13 IsssA surveys conducted between 1984-2001 (IsssA-Pool) with over 26,000 cases.) Logistic regression and OLS models allow us to estimate the separate effects of a variety of aspects of family background. Parental education encourage participation of both men and women. The home literacy environment has effects above and beyond parental education. Maternal employment mainly affects participation of both daughters and sons. Father’s occupational status (job quality) and supervisory status affects daughters’ participation but not sons’. Paternal self-employment does not have significant long-term effects on daughters’ or sons’ labour supply. Nor does parental income. The number of siblings in the family of origin does not affect men’s workforce involvement. Women with more brothers and sisters have slightly lower labour market participation rates, but those who take jobs put in the same number of hours as women from small families. Growing up with youthful or mature parents does not seem to matter to workforce involvement for men or women. Parental divorce reduces women’s labour force participation decades later, but not men’s. It leads to shorter hours of employment among women and men. Immigrant men have higher labour force participation in the first generation, but not the second. Immigrant women’s patterns of workforce involvement do not differ from those of longer, established Australian women, on average. Neither an urban upbringing nor private schooling has any significant effect on the time that men or women devote to the labour market.
How do family arrangements affect subjective wellbeing? We investigate this issue using data from a representative national sample of Australia (N=26,009). Our results suggest that commitment is the key: the security and legal recognition of a formal marriage makes both women and men happier. Thus the traditional pattern of life-long marriage increases the sum of human happiness. A less traditional pattern of early divorce followed by an enduring second marriage is little worse. But the increasingly common modern patterns of divorce without remarriage, or long lasting co-habitation without formal marriage, reduce the sum of human happiness by 5% to 10% for both women and men.
Women's workforce participation increased strongly over the 1980s and 1990s, with the increases being generally larger for married than non-married women, and with the increases being especially large in middle age, as shown by ABS data. Multivariate analysis of IsssA data covering this period shows that there is actually rather little time trend per se. Instead, underlying the apparent shift over time, there are large compositional changes in the female population and there is a strong "birth cohort or "vintage" effect such that succeeding cohorts of women have higher propensities to work throughout their lives than did their predecessors. Among the compositional changes, the strong rise in women's educational attainments and the large decline in fertility both exert substantial influences elevating women's workforce participation and hours worked. There were no evident time effects associated with particular policy initiatives, but some of these are too colinear with time to analyse separately. We tested many interactions with time to assess in particular whether the effects of education and of family situation are declining over time, but no significant interactions with time were found. Thus, for example, there are now many more highly educated women, leading to higher rates of women's employment overall, but the relative importance of education has not changed significantly. Similarly, there are now more childless women, and women with children have fewer of them, so declining fertility has elevated employment, but the impacts of childlessness and of diverse family sizes have not changed, according to these models. Finally, note that we tested a number of potential effects of the family of origin, but none was significant, suggesting that analyses of women's labour force participation and hours worked using datasets that lack these variables probably do not suffer from omitted variables bias.
This paper examines the sources of parental divorce in Australia using respondents' retrospective reports of parents' behaviour in the IsssA-Pool database, a pooled series of representative national samples of Australia conducted between 1984 and 2002 (N=19,601 valid cases for this analysis). We analyse the probability of divorce using logistic regression models. The results include a very large effect of time, with people reaching age 14 before the Family Law Act took effect being much less likely to grow up in divorced families, even net of a wide variety of other social and economic changes over time. Important also are several indicators of family traditionalism: Parents from the Mediterranean countries and parents who are faithful church-goers have more stable marriages. The effects of gender and of size of place are ambiguous: they are marginally significant statistically, and small, to boot. Parental social class has little, if any, effect, except that parents at the top and bottom ends of the income distribution are probably less likely than those in the middle to divorce. Family size and religious denomination do not have significant effects on the probability of divorce in these models. Finally, there is a very large connection between maternal employment and parental divorce; we cannot disentangle the causality here, but can establish a (large) upper bound on the effect of maternal employment on divorce.
This working paper assesses Australians' views on alternative old age pension systems. We find that a no-pension system is very unpopular (28 points out of 100, on average), and a universal pension system fairly popular (62 points, on average), with other systems in between. The current catchment of the current system was not asked about directly in the existing data, but forecasts of its likely rating, based on interpolation between the ratings of the other systems suggest that it would draw ratings of around 55, on average. The existing data do not include any variations in age at access, which ought to be inquired about in future research, because varying that might accommodate goals of containing or reducing spending with public preference for widespread access. Our temporal analysis found no trends between 1993 and 2000 in ratings of any of the alternative pension systems, so the universal age pension still remains the most popular option. Our multivariate analysis found little sign of self-interest in attitudes towards old age income systems: age, occupation, income, and workforce participation do not have important influences on these attitudes, and the education and gender effects do not support a self-interest interpretation. Instead, attitudes towards old age income systems are linked to other political attitudes - to party preferences and to attitudes towards general consumer subsidies. Ideals about the provision of old age income appear to be strongly shaped by other aspects of political ideology, and only lightly touched by self-interest.
The Australian government implemented a sequence of new policy initiatives during 1997{2000 with a stated aim of raising the take-up rate of private health insurance (PHI). Taken together, it is quite clear that these new policy initiatives were effective. The overall proportion of Australian population with private health insurance cover increased by more than 35%. However, much less clear is the effctiveness of different components of the policies. This lacks of clarity results from the sequential implementation those policies. Because of the potentially large cost differences in their implementation, a better understanding of the each policy's effects can be valuable for future policymaking. This paper attempts to isolate the effects of those different policies using the 1995 and 2001 National Health Survey data. These two datasets allow the estimation of private health insurance demands before and after the policy changes. Consequently, they also allow for a counterfactual analysis of what would have happened had there been no new policies. Combined with the age-specific aspect Lifetime Health Cover (LHC), the counterfactual analysis indicates that the effects of LHC fall between 42% and 75% of the overall increase in PHI membership.
We develop a typology for understanding couple households where the female is the major earner – what we term female breadwinner households – and test it using data from the first two waves of the HILDA Survey. We distinguish temporary from persistent female breadwinner households and hypothesise, and confirm, that these two groups diverge on demographic, socio-economic status (SES), labour market and family commitment characteristics. Among the persistent group we further distinguish those couples where the dominance of a female earner is related to economic factors and those where it appears associated with a purposeful gender equity strategy. We again hypothesise and confirm that these household types significantly diverge, finding that men in the economic group exhibit low SES, poor labour market position, and low levels of commitment to family, while both the women and men in the equity type often achieve positive outcomes regarding gender equity and economic and family success.
Theoretical models have long shown that knowledge spillovers are of great economic importance to sustained economic growth and innovation and that these spillovers may be facilitated by physical and technological proximity. However, local knowledge spillovers have not been identified using data from developing countries. In this paper, we examine the relationship between knowledge spillovers and both technological and geographical proximities using micro panel data of Indonesian manufacturing plants between 1990 and 1995. We find both physical and technological proximity are significant. Knowledge spillovers are stronger among plants in the same industrial sector and their magnitude decreases monotonically with geographical distance.
There is a common, largely anecdotally based belief that registered intellectual property is a less efficient form of protection for SME inventors compared with inventors from large firms. This paper discusses the reasons why SMEs may be disadvantaged in their use of intellectual property as opposed to more general disadvantages they may incur over the whole course of innovation. It estimates patent and trade mark rates per employee in Australia but does not find a significant difference between the large firm and SME sectors once industry effects are taken into account.
Underemployment is generally conceived as excess labour supply associated with employed persons – that is, as a situation where employed persons would like to work more hours at prevailing wage rates. Using information collected by the 2001 Household, Income and Labour Dynamics in Australia (HILDA) survey, this study seeks to investigate the extent of underemployment and its effects on outcomes such as income, welfare dependence and subjective well-being. It is found that over one in six employed persons is underemployed, corresponding to a failure to utilise 5 per cent of hours supplied by employed persons. Underemployment is more frequently associated with part-time employment for females, but for males is more frequently associated with full-time employment. Models estimated of the effects of underemployment on outcomes imply that, while unemployment clearly has greater adverse consequences, underemployment is nonetheless associated with significant detrimental effects on the outcomes examined. Negative effects are found for both part-time employed and full-time employed workers who would prefer to work more hours, but effects are greater for underemployed part-time workers, and are particularly large for part-time workers who would like to work full-time. Indeed, for part-time workers seeking full-time employment, effects attributable to underemployment are, for some outcomes, not far short of those attributable to unemployment.
Melbourne Institute Working Paper No. 15/2004
Money Doesn't Buy Happiness … or Does It? A Reconsideration Based on the Combined Effects of Wealth, Income and Consumption
by
Bruce Headey, Ruud Muffels and Mark Wooden
July 2004
The accepted view among psychologists and economists alike is that economic well-being has a statistically significant but only weak effect on happiness/subjective well-being (SWB). This view is based almost entirely on weak relationships between household income and SWB. But income is clearly an imperfect measure of economic well-being. Also needed are measures of wealth (net worth) and consumption. Wealth provides economic security as well as income, and consumption expenditure is the most valid measure of current living standards.
The paper uses household economic panel data from five countries - Australia, Britain, Germany, Hungary and the Netherlands - to provide a reconsideration of the impact of economic well-being on happiness. The main conclusion is that happiness is considerably more affected by economic circumstances than previously believed. In all five countries wealth affects life satisfaction more than income. In the countries for which consumption data are available (Britain and Hungary), non-durable consumption expenditures also prove at least as important to happiness as income.
In the latter part of the paper, we undertake longitudinal analyses of the effects of changes in economic well-being on changes in satisfaction levels. The aim is to reassess psychological adaptation theory, which has been invoked to explain very weak and even non-significant relationships between change measures. Results from panel regression fixed effects models indicate that changes in wealth, income and consumption all produce significant, though not large, changes in satisfaction levels.
This study examines the effect of a community-based work experience program - Work for the Dole (WfD) - on transitions out of unemployment in Australia. To evaluate the WfD program a quasi-experimental exact matching approach is applied. Justification for the matching approach is a 'natural experiment' - limits on WfD project funding - that it is argued constituted a source of random assignment to the program. Participation in the WfD program is found to be associated with a large and significant adverse effect on the likelihood of exiting unemployment payments. The main potential explanation is existence of a 'lock-in' effect whereby program participants reduce job search activity.
This paper investigates whether job offers arrive more frequently for those in employment than for those in unemployment. To this end, we take advantage of a unique Australian data set which contains information on both accepted and rejected job offers. Our estimation strategy takes account of the selectivity associated with the initial employment state and we allow for individual heterogeneity in the probability of obtaining jobs. Our results reveal that, across the wage range, individuals are about equally likely to obtain a job offer in employment as in unemployment. This implies that encouraging unemployed (rather than employed) search through the provision of unemployment benefits does not improve the speed of a job match.
2002 saw the first large-scale survey of household wealth carried out in Australia since World War I. Conducted as part of the second wave of the Household, Income and Labour Dynamics in Australia (or HILDA) Survey, it covered all main components of asset portfolios and debts. This paper uses these data to provide an overview of the structure and distribution of household wealth in Australia, providing estimates of the mean and median levels of household wealth by type of asset or debt, and estimates of the degree of inequality of wealth holdings. The data confirm that wealth is very unequally distributed, with the bottom half of the distribution owning less than 10 per cent of total household net worth (assets less debts), while the wealthiest 10 per cent account for 45 per cent of total net worth. The paper also includes an analysis of the factors associated with household wealth that indicates that wealth is significantly related to a range of factors including age, country of birth, parental occupational status, education, marital status, working hours, income, self-reported savings behaviour, a willingness to take risks and even various lifestyle behaviours, such as smoking and alcohol consumption.
We introduce the ideas of “drop ceilings”, that full-time employees who switch to reduced hours thereafter face an hours ceiling such that a return to full-time employment is difficult, and of “trap-door floors”, that full-time employees may be denied the opportunity to reduce their hours and instead face a choice between full-time employment and quitting the job. These ideas derive from the potential existence of norms around the ideal worker and motherhood. Relevant hypotheses are developed and tested using information on usual and preferred working time from the first two waves of the Household, Income and Labour Dynamics in Australia survey. The key findings are that women face drop ceilings significantly more often than men; that professionals and managers confront trap-door floors significantly more often than employees in other occupations; and that trap-door floor effects are generally stronger than drop ceiling effects in the data.
A challenge for applied studies of innovation is to find quality-adjusted and unbiased measures for the extent and type of innovative activity in firms. This paper considers, in the light of the uses for these measures, how well we expect these common indicators quantify innovative services and how well they actually correlate using data from a sample of 641 companies. The results suggest that while the correlations between indicators are positive, they are quite small. In addition, our findings show that compared with survey measures, the accounting and administrative measures have different biases with respect to firm size, industry sector and innovation type. This should be born in mind when using these measures to depict trends in innovative activity and reveal relationships between firm activities.
The objective of this paper is to evaluate the effectiveness of using a Markov switching model to measure the synchronization of business cycles. We use a Bayesian, Gibbs sampling approach to estimate a multivariate Markov switching model of GDP growth for several countries. We look for evidence of synchronization across countries in the sense of common Markov states, covariance of impulses and a long-run co-integrating relationship. We then use the fitted data implied by the posterior distribution of the Markov switching VAR, in conjunction with a dating rule, to obtain the posterior distribution of binary business cycle states. We use these to investigate the posterior distributions of non-parametric measures of synchronization described by Harding and Pagan (2003) and compare them with similar measures obtained from standard reference chronologies. As a point of reference, we repeat this exercise using simulated data from a linear VAR.
We find no evidence of a common Markov state, but some evidence of the propagation of country-specific disturbances across countries and of a co-integrating relationship between the United States and Canada. Posterior odds ratios overwhelmingly favor the Markov switching model over the linear VAR and we find that the posterior distributions of the non-parametric measures of synchronisation produced by the Markov switching VAR match the data more closely than those produced by the linear VAR.
The paper examines the factors that determine the duration on the Disability Support Pension (DSP) program using administrative data. We estimate two models based on two competing assumptions: the first model takes the standard assumption in duration models that all recipients will eventually leave the program. The second one takes into account the possibility that there may be some recipients who will never recover from their disabilities and hence not leave the program. Although there are differences in the results, both models indicate that female recipients, recipients who enter DSP at a young or old age, and recipients who transfer from unemployment benefits have the potential of a longer DSP duration.
Using Australian industry-level data on weekly hours of work and frequency of new workers' compensation claims for work-related accidents over the 1990s, the relationship between working time and work-related injuries is examined. Results using panel data techniques suggest there is no relationship between working time of full-time workers and workplace safety performance. This finding is in contrast to cross-sectional evidence presented by previous researchers showing significant effects of working time on safety performance. Evidence is found in this study, however, that increased working time of part-time employed persons is associated with a greater rate of workplace injuries.
Demands for formal and informal childcare are estimated using a bivariate Tobit model. Predicted costs of childcare are incorporated in the households’ budget constraints and a discrete choice labour supply model is estimated. Separate models are estimated for couples and lone parents. Increases in the prices and costs of childcare lead to reductions in labour supply for lone parents and partnered mothers. Results suggest the average elasticities in Australia are closer to those found in the U.K. and are smaller than the estimates for Canada and the U.S. Effects are stronger for single parents and mothers facing low wages.
Problems with work disincentives and poverty traps apparent in the Australian tax-transfer system have led to a renewed debate about the advantages of universal benefits relative to means-tested benefits. This paper examines the implications of moving to a system where benefits are universal and the marginal tax rate schedule is simplified to a constant rate, refered to as a basic income — flat tax system. The Melbourne Institute Tax Transfer Simulator(MITTS), a behavioural micro-simulation model of the Australian tax-transfer system is used to examine the distributional,labour supply and government expenditure effects of moving to a basic income—flat tax system. Providing basic income levels that coincide with current benefit rates is costly, with a marginal tax rate of over fifty percent required for revenue neutrality. Such a system, while equitable, is found to reduce labour supply. If a version to inequality is high, this system is found to be socialy optimal, even after reductions in labour supply. Decreases in the marginal tax rate improve work incentives and increase the supply of labour, but increase inequality and impose a significant cost burden on government. A decline in the level of basic income of at least half is required to fund a reduction in the marginal tax rate to thirty percent. While the distortions to behaviour are minimal with this final system, it is extremely inequitable and social welfare reducing, even after a counting for changes in labour supply.
Although the overseas literature on the effect of health on labour force participation is extensive, especially in the US, the literature in an Australian context is scarce. This paper contributes to the understanding of this issue using the recently released Household, Income and Labour Dynamics in Australia (HILDA) Survey data. The potential endogeneity of the health variables, especially self-assessed health, in the labour force participation equation is addressed by estimating the health equation and the labour force participation equation simultaneously. We also take into account the correlation between the error terms in the two equations to obtain an efficient result. The null-hypothesis of exogeneity of health to labour force participation is tested based on a test of the joint significance of the labour force participation variable in the health equation and the correlation coefficient of the two error terms.
The accepted view among psychologists and, increasingly, economists is that household income has statistically significant but only small effects on measures of subjective well-being. Income, however, is clearly an imperfect measure of the economic circumstances of households. Using data drawn from the 2002 wave of the Household, Income and Labour Dynamics in Australia (HILDA) Survey, this paper demonstrates that wealth, which can be viewed as providing a degree of economic security, is at least as important to well-being and ill-being as income.
Over the past quarter of a century, trade mark applications have grown by 2.3 per cent per annum faster than real GDP in Australia. This paper explores the factors associated with this growth. We find some evidence that over the past two decades, trademarking has been associated with more inventive companies, the growth of the service sector, globalisation and industry based microeconomic reforms. There is provisional evidence that higher levels of real income per capita have supported some of these factors.
Data from a representative survey of adult Australians are analysed for usual and preferred working time across family types. We discover a time divide regardless of gender and family type: many short hours individuals desire longer hours of employment, while many long hours individuals prefer shorter hours. The latter group is larger such that the average employee desires fewer hours across family types, with the exception of lone mothers. For dual-earner couples with children, men average approximately 20 hours more per week than women, a difference that would only decline to 18 hours per week if preferred hours were realized. However, approximately one-fifth of these couples exhibited egalitarian or nearly equal working hours. Egalitarian couples averaged a combined 84 hours per week of employment, tended to share the care of children, were more likely to be non-Australian born, and included marked numbers of women holding degrees and in professional occupations.
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