Unemployment Equation Research Articles

The relationship between the relative GDP share of agriculture and the unemployment rate in selected Central and Eastern European countries

The study empirically investigates the relationship between the relative GDP share of agriculture and the unemployment rate in a sample of ten Central and Eastern European countries. Utilising the annual data for the sample period 1996–2013, the empirical analysis is carried out using the dynamic panel regression analysis and the Granger causality tests. The estimation results based on the alternative specification of regression equations for the unemployment rate suggest that the unemployment rate is negatively related to the relative GDP share of agriculture. In addition, a similar effect has been obtained for some other explanatory variables we have included in the unemployment equation as controlling variables: higher investment rate and trade openness are likely to lower the rate of unemployment. The financial development has also been found to be negatively related to the unemployment rate, although the statistical significance of its effect depends on the estimation technique used. On the other hand, the GDP growth and the government consumption have been found to be insignificantly related to the unemployment rate. While the Granger causality tests performed for each country produced evidence of a causal effect of the relative GDP share of agriculture in some countries, in some other countries the direction of causality has been found to be from the unemployment rate to the relative GDP share of agriculture. Our findings suggest that agriculture may play a potential role in lowering the prevailing rates of high unemployment; but this potential is likely to vary between countries.

A Kind of Neither Keynesian Nor Neoclassical Model (4): The Nature of Philips Curve

Officials always want to use the replacement relationship between the unemployment rate and the price of the Phillips curve to reduce the unemployment rate, but things go crisscross. The reason is that there is no causal relationship between price and unemployment. In this paper, it demonstrates the Phillips curve is derived from the unemployment cycle equation and the inflation equation. And then, it discusses the influence of core variables and fluctuating variables on Phillips curve and the cause of distortion or complete disappearance of Phillips curve. Finally, this paper discusses monetary neutrality and related monetary policy issues. The policy that is conducive to the smooth operation of the system is consistent with the constant money supply of the economic cycle, rather than counter-cyclical regulation.

THE EFFECT OF CIVILIAN UNEMPLOYMENT ON REENLISTMENT DECISION IN TURKISH ARMED FORCES

The existing studies on the issue of reenlistment decision regard joining the army as a choice that an individual makes among alternative courses of action. Previous empirical research suggests that socio-economic background, higher educational benefits, civilian employment status and experience are among the determinants of reenlistment decision. This study investigates if unemployment has an effect on reenlistment decision of recruits for Turkish Armed Forces in a seemingly unrelated bivariate probit framework. Empirical analysis indicates that former civilian unemployment significantly increases the likelihood of reenlistment. Moreover, previous single equation models might be misspecified since the residuals of reenlistment and unemployment equations are correlated.

Do Migrants Rob Jobs? New Evidence from Australia

Using a new Granger no-causality testing procedure, developed by Toda and Yamamoto (1995), this study contributes to recent debate on immigration and unemployment in Australia by investigating the causal linkage between immigration and unemployment in a six-variable vector autoregresion (VAR) model. The VAR model in the paper is built upon a general unemployment equation developed by Pope and Withers (1993), using quarterly time series data covering the 1983:3 to 1995:4 period. The question that whether immigrants rob jobs is examined by identifying the sources of unemployment through causal linkages between unemployment and other key variables such as immigration. The research finds no Granger causality between immigration and unemployment. Instead, there is evidence of Granger causality running from structural change, as measured by the Stoikov Index, to unemployment and from other key variables to unemployment.

Unemployment Revisited: Empirical Evidence from 20 OECD Countries

The undertaken paper attempts to gain further insight into a string of factorsthought to condition unemployment. By exposing the theoretical arguments of theKeynesian Neoclassical and radical/Marxian approaches we empirically estimate ahybrid unemployment equation, the generated evidence of which appears to be inline with both the Keynesian and Marxian tradition. For the empirical investigation,dynamic panel data analysis is applied to 20 OECD countries for the period 1970–2003.JEL Classification: E11; E12; E13; E24; C51.

Global Factors, Unemployment Adjustment and the Natural Rate

AbstractOECD unemployment rates show long swings which dominate shorter business cycle components and these long swings show a range of common patterns. Using a panel of 21 OECD countries 1960-2002, we estimate the common factor that drives unemployment by the first principal component. This factor has a natural interpretation as a measure of global expected returns, which is given added plausibility by the fact that it is almost identical to the common factor driving investment shares. We estimate a model of unemployment adjustment, which allows for the influence both of the global factor and of labour market institutions and we examine whether the global factor can act as a proxy for the natural rate in a Phillips Curve. In 15 out of the 21 countries one cannot reject that the same natural rate, as a function of the global factor, appears in both the unemployment and inflation equations. In explaining both unemployment and inflation, the global factor is highly significant, suggesting that models which ignore the global dimension are likely to be deficient.

Unemployment and Profitability in Spain

This paper explores empirically the relationship between the high and persistent unemployment in Spain and the profitability on invested capital. It is shown that there exists a negative long-run relationship between the two variables, an unemployment-profit rate trade-off (UPRT). A conditional equation with constant parameters relating the unemployment rate to the profit and capacity utilization rates is derived. Exogeneity tests indicate that profit rate and capacity of utilization are weak, strong, and super exogenous for the parameters of the unemployment equation.

Unemployment Duration in an Unemployment Blackspot

This paper analyses the factors affecting the duration of an unemployment spell amongst a sample of exclusively long‐term unemployed individuals. The results indicate that person‐specific unemployment propensities have a significant effect on re‐employment probabilities. These effects, however, vary significantly by gender and religion. The results also indicate statistically significant negative ‘duration dependence’ effects. The evidence suggests that employers regard long unemployment durations as a ‘negative signal’ about an applicant's potential productivity. The latter implies that, in terms of government policies aimed at reducing unemployment, the demand‐side of the unemployment equation should be given greater emphasis.

Sectoral shifts, stock market dispersion and unemployment in Canada

Considerable attention has been given in the last ten years to estimation of the importance of sectoral shifts in explaining short-term fluctuations in unemployment. Recent studies have used US stock prices data to develop indexes of sectoral shocks less affected by cyclical influence than Lilien's employment dispersion index. Two indexes of sectoral shifts for Canada based on the sectoral dispersion of stock prices growth rates are calculated. These indexes are then used in unemployment equations incorporating variables measuring aggregate demand shocks and structural changes in order to assess the importance of sectoral and cyclical shocks in the determination of the Canadian unemployment rate. The estimation leads to the conclusion that the major recessions of 1981–82 and 1990–91 have been caused by aggregate demand shocks. However, both types of shocks contributed to the 1974–75 recession while the mild recession of 1980 was accompanied by an important sectoral shock. Estimations also show that the most important sectoral shock was in 1986, following the drop in energy prices, but a strong aggregate demand prevented any change in the unemployment rate at this time. The model also detects an important structural rise in the unemployment rate during the seventies. On the whole, the results show that, although sectoral shifts have the potential to induce short-term unemployment fluctuations, actual changes in the Canadian unemployment rate were mainly the consequences of monetary conditions and foreign demand for Canadian goods and services.

Unemployment Fluctuations in the UK: 1958–92

This paper presents estimates of a reduced-form unemployment equation for the UK using annual data from 1958 to 1992. It extends previous work by using modern time series econometrics, by focusing on variables that bring about fluctuations around the natural rate as well as variables that determine it, and by using a measure of sectoral reallocation purged of demand influences. The resulting equation has stable parameters which are readily interpretable in terms of the underlying theories of unemployment fluctuations.

Evidence concerning non-linear structure in Canadian provincial unemployment rates

In this paper we examine Canadian provincial unemployment data for evidence of significant non-linear structure. Recent work on unemployment persistence, see Nickell (1990), suggests that the reduced form unemployment equations can be modelled by linear autoregressions. Our findings are consistent with the above literature and also confirm the results of Frank and Stengos (1988b) for the aggregate Canadian unemployment series. To test for the presence of non-linear effects we employ a test by Brock et al. (1987) which is derived from the non-linear dynamics literature.

Distribution, Aggregate Demand and Unemployment in OECD Countries

The primary aim of this paper is to investigate the role of income distribution in the determination of unemployment. To this end, the author develops a post-Keynesian model that shows that unemployment is effectively determined by income distribution, aggregate demand, and the inadequacy of capital equipment. The deriv ed unemployment equation is applied to ten large industrial countries o ver the period 1976-89. The empirical findings provide strong support fo r the hypothesis that shifts in income distribution and inadequacy of capital equipment are major sources of unemployment. Copyright 1993 by Royal Economic Society.

Endogeneity in Structural Unemployment Equations: The Case of Canada

Endogeneity in Structural Unemployment Equations: The Case of Canada

Endogeneity in Structural Unemployment Equations: The Case of Canada

This paper examines the endogeneity of several structural variables which enter unemployment rate equations--the generosity of unemployment benefits, nonwage labor costs, the relative minimum wage, and the degree of unionization. It finds evidence of reverse causality for these structural variables based on causality tests. The structural unemployment rate equation is then estimated using instruments suggested by the empirical analysis of the structural variables. The paper confirms the earlier finding that the generosity of unemployment benefits, nonwage labor costs, and the relative minimum wage have a significant positive impact on the unemployment rate, but fails to find an effect for the degree of unionization.

REGIONAL EARNINGS AND UNEMPLOYMENT ‐ A SIMULTANEOUS APPROACH

This paper presents an econometric analysis of the interaction between regional unemployment and regional earnings in Britain. A two-equation error-correction model of regional earnings and unemployment determination is estimated on data for 1972 to 1988 inclusive. The wage equation relates regional earnings to unemployment, long-term unemployment, and indices of living costs both including and excluding housing costs. The unemployment equation relates regional unemployment to earnings and real output. Higher relative unemployment and lower regional living costs both lead to lower regional earnings; however, increases in regional earnings and decreases in regional output lead to increased relative unemployment. Copyright 1992 by Blackwell Publishing Ltd

A disequilibrium model of real wages, employment and unemployment for the U.S.A. during 1930–1965

The well known Lucas-Rapping (1969, 1970) U.S. Labour market model has been estimated with a simple disequilibrium estimation method. Neither the wage rate nor the employment level are found to adjust to clear the labour market within the unit time period. The elasticity of labour supply in the short run is found to be high which is consistent with the recent theories of real business cycle. Adjustment in employment towards equilibrium is faster than the adjustment in the wages. The rate of unemployment is satisfactorily explained by the excess supply rate without the need for the lagged unemployment rate. Thus our unemployment equation is superior to the Lucas-Rapping equation based on the equilibrium framework.

Unemployment in Canada and the United States

Reduced-form unemployment equations containing aggregate demand, structural, and frictional variables are estimated for Canada and the United States. Post-1981 increases in unemployment rates are explained almost entirely by aggr egate demand variables, although structural/sectoral variables make i mportant contributions to changes in the gap between the two countrie s' unemployment rates. For both countries, the results support the fo llowing monetarist propositions: monetary variables are the prime determinants of the business cycle, exogenous investment shocks are typically of minor importance, and macro policy has tended to be dest abilizing.

Unanticipated Money Growth and Unemployment: Post-Sample Forecasts

In the late 1970s, Robert J. Barro published what has since become a popular model of business fluctuations. Barro's [3] findings provide evidence advocating the short run neutrality of money under rational expectations, forging an important empirical link to the theoretical studies of Lucas [19; 20] and Sargent and Wallace [33]. The original Barro unemployment model has received additional support from further statistical testing [5; 6; 15]. Despite criticisms and modifications, some of which are considered in Barro's [6] updated model, these equations have inspired numerous empirical studies analyzing unanticipated effects of macroeconomic variables. This paper examines post-sample forecasts of Barro's original [3] and revised [6] unemployment equations for the 1974-84 period. Mayer [23; 24], Harvey [13, 179-80], and Lovell [18], among many, contend that the ability to successfully forecast outside of the sample period is an important criterion for evaluating model robustness. This view is also reflected in a substantial body of studies, including [10; 25; 26; 29; 39], which investigate the post-sample predictive performance of macroeconomic models. One year ahead forecasts indicate that the Barro [3; 6] equations accurately predict unemployment for the 1974-79 period. During 1980-84, however, the predictive performance of both models sharply deteriorates. Augmenting the Barro models with interest rate volatility, in accordance with the findings of Evans [11] and Tatom [38], considerably improves the overall forecasting ability. This modification also rectifies the 1980s structural instability of the Barro unemployment equations. Furthermore, the basic conclusions of the seminal Barro work are retained with this augmented model. The results reveal that increases in interest rate volatility exert significantly adverse effects upon unemployment, corroborating with the findings of Evans [11] and Tatom [38]. Still, interest rate volatility could be overlooked in previous estimations of the Barro, or other, models of business fluctuations due to the variable's relative constancy prior to 1979.

The spatial variation in unemployment and labour force participation rates of male and female workers.

This paper uses 1980 US census tract data from Boston, Denver, Pittsburgh, Seattle, and St. Louis to examine spatial variation between male and female unemployment and labor force participation. Research shows that families and individuals with characteristics making them more prone to unemployment tend to live in central cities. Suburban workers living far from the city's center may also have higher unemployment rates due to higher job search and commuting costs. Female workers differ from male workers by earning less money, working fewer hours, and often, by valuing their travel time to work more highly. This study's variables include age, race, education, language, past migration experience, and occupation. In all of the unemployment equations, the percentage of black and education variables are highly significant. Distance variables are not significant in the overall unemployment equation, but distance is highly significant and positive in the female model: Women's unemployment rates are low for the central city and relatively high for suburban census tracts. Male unemployment is high in the central city, low in the suburbs, and becomes higher again at 10 miles distance from the center. The authors believe that job related information decreases as the worker moves farther from the central city. Labor force participation equations also show significant distance to have a detrimental effect on female participation but a positive effect on male participation. Demanding home roles may constrain womens' job choices; women are twice as likely as men to indicate self-imposed job location and work hour limitations. This paper's results suggest that unemployment reduction tactics such as improving transportation will affect male workers more than female workers, and may affect men and women differently. Continued research needs to consider the enormous increase in female labor force participation and develop economic theories appropriate for 2-earner households.

Unemployment in the United Kingdom Since the War

In this paper, we first present a competitive macroeconomic model of an open economy which is suitable for estimation and contrast this with a non-competitive model. We then derive unemployment equations from the various models and estimate them over annual data from 1948–1979. We draw the following conclusions. (i) The competitive model of the labour market does not fit the facts. (ii) The non-competitive model generates an equation for the constant inflation rate of unemployment which reveals how, at certain times such as the mid 1970s, a combination of factors conspired to raise this level forcing the government into a deflationary stance to prevent inflation rising drastically. (iii) A number of factors have raised the level of unemployment in a secular fashion since the war, in particular the increase in the variation of relative prices, the increase in the benefit to income ratio, the introduction of employment protection legislation and the rise in the intersectoral shifts of the labour force.