tiểu luận kinh tế lượng factors affecting unemployment rate in japan

On the other hand, a low unemployment rate means that theeconomy is more likely to be producing near its full capacity, maximizing output, anddriving wage growth and rising living standa

FOREIGN TRADE UNIVERSITY INTERNATIONAL ECONOMICS FACULTY

Table of Contents

I Introduction……… 3

1 Object……… ……… 3

2 Scale of the research……… 4

II Theorical background……….……4

III Literature review………8

IV Data description……… …………9

1 Variable table……… 9

2 Data description……….9

3 Correlation matrix……….……… 10

V Econometrics model……… …….10

1 Population Regression Function……….10

2 Sample of Regression Function……… ….10

3 Result……….11

4 Meaning of Coefficient……….11

5 Testing hypothesis relating to a regression coefficient………12

VI Robustness check……… 14

1 Multi-collinearity……….……… … 14

2 Heteroskedasticity……… … 15

3 Normality……… 16

4 Auto correlation……… 17

VII Cure……… …18

VIII Recommendation……… 20

IX Conclusion……… 21

X References……… 22

XI Appendix……… ……… …23

I Introduction

Econometrics is defined as the social sciences in which the tools of economic theory,mathematics and statistical speculation are applied to the analysis of economic problems.Econometrics analyzes real - world data using statistical methods to test or developeconomic theory as well as to more understand those issues Through the results,econometricians can make predictions of economic phenomenon

Unemployment is a social problem that both developed and developing country areconsidered As the general, more unemployed workers mean less total economicproduction will take place than might have otherwise And unlike idle capital,unemployed workers will still need to maintain at least subsistence consumption duringtheir period of unemployment This means the economy with high unemployment haslower output without a proportional decline in the need for basic consumption High,persistent unemployment can signal serious distress in an economy and even lead tosocial and political upheaval On the other hand, a low unemployment rate means that theeconomy is more likely to be producing near its full capacity, maximizing output, anddriving wage growth and rising living standards over time

Japan - a developed country is known as the third largest economy And Vietnam - adeveloping country has high the number of labor export to developed country like Japan.According to the statistic data from the World Bank (2018), the unemployment rate inVietnam and Japan is 1,891% and 2,335% respectively As the theory above, theunemployment rate in Japan is supposed to be lower than the unemployment rate inVietnam

As economics students, we recognize the need to study and research about Econometrics

in logical and problem analysis as well as interested in Japan’s labor market So, to betterunderstand how to apply the Econometrics into reality, our group which includes threemembers: Phan Thi Thu Trang, Le Thuy Linh and Tran Thuy Huyen would like todevelop Econometrics report (known as final exam) under the guidances of Assoc.Prof.Dr.Tu Thuy Anh and PhD Chu Thi Mai Phuong In this report, we used the econometric

analysis tool GRETL to analyze the topic "Factors Affecting Unemployment Rate in Japan”

1 Object

The object of the topic is analyze the influence of Gross Domestic Product Growth Rate,Population Growth Rate, Inflation Rate and Foreign Direct Investment to unemploymentproblem in Japan (measured by Unemployment Rate variable)The report tends to concentrate on directly objectives below:

- Revising the knowledge that we have studied through the course and also have thechance to test of the influence of GDP Growth Rate, Inflation Rate, FDI &Population Rate to Unemployment Rate in the world, specially in Japan

- Using Ordinary Least Squares Regression to analyze the affecting of variables toUnemployment Rate Testing and fixing errors of model estimated Then, givingsuggestion and solution for the problem from real data

2 Scale of the research

Researching about the affecting of factors: GDP Growth Rate, Population Growth Rate,Inflation Rate and FDI to Unemployment Rate in Japan from 1980 to 2018

Finally, we want to give a sincere thank for our instructors - Assoc Prof Dr.Tu ThuyAnh and PhD Chu Thi Mai Phuong for helping us to implement this report Through thisassignment, we had the chance to review, consolidate and use the knowledge gained from

the Introduction to Econometrics Course to analyze a real issue Despite all the efforts,

we certainly can not avoid the errors, we look forward to your comments so that our teamcan improve this report

II Theorical background

1 Unemployment rate

1.1 Definition

The unemployment rate is defined as the percentage of unemployed workers in the totallabor force Workers are considered unemployed if they currently do not work, despitethe fact that they are able and willing to do so

1.2 Calculating Unemployment Rate

Unemployment Rate= Number of Unemployed Persons

(real wages) is in excess of those an employer is willing to pay (market clearing wage).

By definition, the market clearing wage is the equilibrium wage That is to say, it is thewage at which the supply of labor is equal to the demand for the labor This relationship

is illustrated below:

At the market clearing wage (MCW), the demand for labor is exactly equal to the supply

of labor and classical unemployment would be zero When real wages (RW) are in excess

of the market clearing wage (MCW), classical unemployment is greater than zero

2 The Philips Curve: The relation between inflation rate and unemployment rate

The idea for the Philips curve was proposed in 1958 by economist A.W.Philips and hefound that there was a stable, inverse relationship between wages and unemployment.Then in 1960, economists Paul Samuelson and Robert Solow expanded this work toreflect the relationship between inflation and unemployment The Philips curve arguesthat unemployment and inflation are inversely related: levels of unemployment decrease,inflation increase

Graphically, the short-run Philips curve traces an L-shape when the unemployment rate is

on the x-axis and the inflation rate is on the y-axis

The theory of the Philips curve seemed stable and predictable Data from the 1960’smodeled the trade - off between unemployment and inflation fairly well The Philipscurve offered potential economic policy outcomes: fiscal and monetary policy could beused to achieve full unemployment at the cost of higher price levels or to lower inflation

at the cost of lowered employment However, when governments attempted to use thePhilips curve to control unemployment and inflation, the relationship fell apart Datafrom the 1970’s and onward did not follow the trend of the classic Philips curve Formany years, both inflation rate and unemployment rate were higher than the Philips curvewould have predicted

3 Keynesian unemployment theory

Keynes developed his theories in response to the Great Depression, and was highlycritical of classical economic arguments that natural economic forces and incentiveswould be sufficient to help the economy recover

In Keynesian Unemployment, it is the situation where low wage-rates should result inhigher employment levels, but don’t because the economy is in recession and theemployees are facing low demands for their goods and services

According to Keynesian theory, changes in aggregate demand, whether anticipated orunanticipated , have their greatest short-run effect on real output and employment, not onprices

Keynes economics has pointed out that prices and wages are flexible, full-employment ishard to achieve and not sure to be good It means that the economy needs to balance thewage employees want to receive and the wage employers willing to pay

Keynesian theory of unemployment is a demand-deficient theory This means thatKeynes visualized unemployment from the demand size of model His theory, alsoknown as demand-oriented approach, opposed to classical supply side model According

to Keynes, the volume of employment in a country depends on the level of effectivedemand of people for goods and services

4 Overview about factors affecting to unemployment rate

4.1 Gross domestic product growth rate

Gross Domestic Product (GDP) is a moneytary measure of the market value of all thefinal goods and services produced in a specific time period (according to wikipedia).Economic growth is measured by gross domestic growth rate Theoretically, when acountry has higher growth means unemployment is soluted This thing shows theinversely relationship between economic growth and unemployment rate

In economics theory, Okun’s law (Aurthur Melvin Okun) (1962) proposed therelationship the relationship between unemployment and losses in a country's productionwhich was summed up through his observation Okun’s law pointed out theapproximately estimation that “2% increase in output corresponds to a 1% decline in therate of cyclical unemployment; a 0.5% increase in labor force participation; a 0.5%increase in hours worked per employee; and a 1% increase in output per hours worked”

4.2 Inflation rate

A.W.Philips is one of the first economist found the method to prove the inverselyrelationship between inflation and unemployment This correlation is showed throughPhilips curve (1958)

William Philips supposed that unemployment rate and inflation has inverselyrelationship It means that if a economy want to have low unemployment rate, itseconomy must

4.3 Foreign direct investment growth rate

Foreign Direct Investment (FDI) is an investment in the form of a controlling ownership

in a business in one country into business by an entity based in another country(according to wikipedia)

FDI is one of the important resources to compensate for foreign investment, promoteseconomic developmen to countries invested, specially to developing and under-developedcountries It is an basically channel for the transfer of technology between countries,promotes international trade In reality, FDI impacts directly both positive and negative

on unemployment rate in different aspects

4.4 Population growth rate

Population Growth Rate (PGR) is the changing of population for a period of time

According to Malthusian theory of population (1798), the increase in population undercontrolled will cause the higher of unemployment Other words, the vast populationcauses higher unemployment rate in any economy

III Literature review

Saga Katria, The study of the relationship between inflation and unemployment witheight regional member countries of SAARC and six expected future member countriesfrom the perspectives of Philips curve for the period 1980 - 2010 The results shows thatthere is trade-off between inflation and unemployment

Relationship between unemployment and the inflation rate in India (Philips curve)

The study is based on secondary data collected from planning commission of India;inflation.edu.in and the ordinary least square & simple linear regression has been used foranalysis of data The results suggests that there is a positive relationship betweeninflation and unemployment Therefore, the Philips curve did not come true in the context

of India’s economy

O’Nwachukwu (2017), Determinants of the Rate of Unemployment in Nigeria

The study examines the determinants of unemployment rate in Nigeria from 1980 to

2016 And the researcher employed the Ordinary Least Squares (OLS) method toestimate the model after using the Augmented Dickey-Fuller to test for unit root And theresults is first lag of unemployment in Nigeria and GDP were not statistically significant

in explaining unemployment in Nigeria

Dr Aurangzeb, Khola Asif (January 2013), Factors affecting Unemployment: A crosscountry analysis This study investigates macroeconomic determinants of theunemployment for India , China and Pakistan for the period 1980 to 2009, using cointegration, granger causality and regression analysis , The variables selected for thestudy are unemployment, inflation, gross domestic product, exchange rate and theincreasing rate of population The results of regression analysis showed significantimpact of all three variables for all three countries It is recommended that distribution ofincome needs to be improved for Pakistan in order to have positive impact of growth onthe employment rate

IV Data description

X4 The value of inward direct investment made by

non-resident investors in the reporting economy

%

2 Data description

Unemployment rate (Y) 3.472 3.400 1.047 2.000 5.400GDP growth rate (X1) 1.955 1.663 2.244 -5.416 6.785Population growth rate (X2) 0.2257 0.2380 0.2839 -0.2030 0.7840Inflation rate (X3) 1.001 0.5960 1.752 -1.353 7.779FDI net inflows (X4) 0.1447 0.07100 0.1925 -0.05300 0.8310

Description:

Urate Mean: The average unemployment rate of 39 observations is 3.472%

Urate Median: Fitted value of dependent variable unemployment rate is 3.4%

Urate Minimum: The minimum unemployment rate among 39 observations is 2%

Urate Maximum: The maximum unemployment rate is 5.4%

Std Dev (Standard Deviation): Is a measure of how spread the numbers are, equals to

the square root of sample variance The Std Dev of unemployment rate here is 1.047

We have the temporary econometrics model for unemployment rate in Japan:

Y = 4.22127 + (-0.138534).X1 + (-0.239892).X2 + (-0.355520).X3 + (-0.475336).X4 + e

4 Meaning of Coefficient

𝛽0: If all these other factors equal to zero, the unemployment rate equals to 4.22127%𝛽1: If the GDP growth rate increases by 1%, the unemployment rate will decrease by0.138534%

𝛽2: If the price growth rate increases by 1%, the unemployment rate will decrease by0.239892%

𝛽3: If the inflation rate increases by 1%, the unemployment rate will decrease by0.355520%

𝛽4: If the FDI increases by 1 unit(?), the unemployment rate will decrease by 0.475336%

5 Testing hypothesis relating to a regression coefficient

So: We have enough evidence to reject H0

The intercept β0 has meaning in model

According to the table p-value (F) = 2.22e – 06 < 0.05

* Conclusion, we reject hypothesis has statistical

R2=0.596478: it means that regressors explain 59.65% of the variance of unemploymentrate

Conclusion: According to the results above, the coefficient β2, β4 have no meaning in the

model, β1, β3 have the statistical significance in the model Therefore, unemployment rate

of Japan is affected by the following factors : GDP growth rate, inflation rate

We do not eliminate variables X2,X4 because it doesn’t affect the estimated result

VI Robustness check

1 Multi-collinearity

1.1 VIF

We can see from the chart that all the VIF values of the variables are less than 10

So, all the variables do not show the collinearity problem

1.2 Correlation