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Location and Unemployment

Are people receiving unemployment-related income support more likely to exit from income support if they live in a stronger labour market? This paper examines this question using data from the Australian Department of Family and Community Services Longitudinal Data Set (LDS). We find that, controlling for other observed characteristics, living in an area with a one percentage point lower unemployment rate is associated with a 5 per cent increase in the probability of exit. This implies a 9 per cent decrease in the mean duration of benefit receipt. This should be considered an upper bound for the impact of regional labour market characteristics as it partly reflects the fact that people with low skill levels can only afford to live in high unemployment regions. To control for unobserved characteristics (such as skill levels) that are constant over time we look at changes in income support among people who move location. This suggests a much lower, but still significant, impact of local labour market conditions on unemployment benefit receipt.