China's Special Natural Rate Of Unemployment And Its Empirical Study

Many developed countries, such as OECD member countries, have established some measurement models of the natural rate of unemployment to measure the level of NAIRU in the past ten years or several decades and make comparison between different countries. However, what is the definition of the natural rate of unemployment in western world? How to measure China's natural rate of unemployment and what is the trend?What are the determining factors that influence the changes of China's natural rate of unemployment? The existing study on these issues is very few. This paper reviews history of the natural rate of unemployment in western world, establishes the econometric model, measuring China's natural rate of unemployment and makes an in-depth analysis of the changes of the unemployment rate in China's economic transition period from the perspective of surplus pressure, the labor market and social unemployment security system, finally gives some policy recommendations.Chapter I in this paper emphasizes on the significance of the main topic, introduces research background and current situation, and provides research process and frame. The natural rate of unemployment research is an important part of economic research. It could promote development of the labor market in China and make theoretical support to macro-economy policy. With the development of the Phillips curve model, more and more research papers about the natural rate of unemployment to which western world pay much attention have been produced, while a few papers were published in Chinese Journals. The relationship between unemployment and inflation showed by Phillips'study has been the most influential and controversial issue in the practice of macro-economic policies for decades in the West. It also becomes the big issue in China with the establishment of market economy dominant status. This paper mainly analyzes the characters of the natural rate of unemployment in China and measures its level.Chapterâ…¡in this paper details the formation and the concept of the natural rate of unemployment in Keynesian economics and Classical economics in the first part. The natural rate of unemployment as the basis of Keynesian economic theory has improved the drawback of Classical economics. Natural rate of unemployment theory provides other theoretical basis and the research field for the monetarist school. It also provides the basis of criticism for the neo-classical economic theory. The second part discusses the evolution of Phillips curve which describes the relationship between inflation and unemployment and introduces the relationship between the Phillips curve and monetary policy. The third part reviews the monetarist school's challenge to Keynesian economics and analyzes additional expected Phillips curve in both theory and evidence. The fourth part raises a few questions on NAIRU and explains the concept difference between NAIRU and the natural rate of unemployment. The fifth part introduces some new methods of neo-classical economy to study inflation, unemployment and monetary policies to provide some alternative research perspective. The sixth part introduces some new models which study the existence of natural rate of unemployment and the impact of its change.Chapter III in this paper discusses special characters of China's natural rate of unemployment. Looking back the origin theory of West's natural rate of unemployment it could be found that the natural rate of unemployment is controversial because its definition has closer ties with the study models of labor force market. In view of the considerable gap between labor force markets in China and west developed countries, it is not possible to copy the Western model directly to discuss the determinants of China's natural rate of unemployment. Combined with the actual situation in China it is considered that three aspects include surplus pressure, the labor market and social unemployment security system are the determinants which influence the changes of China's natural rate of unemployment. Some qualitative analysis is given in this chapter supplemented by a large number of facts and figures.Chapter IV in this paper reviews the evolution of measurements of the natural rate of unemployment in the Western countries. Since the natural rate of unemployment could not be directly observed, so early studies main use OLS regression method. Although the traditional methods can give the stable value of the natural rate of unemployment, it is much harder to reflect the change of real economy. Therefore, recent researches regard the natural rate of unemployment as a time-varying parameter with a high econometric method to estimate the time series of natural rate of unemployment. Scholars use many different models with different parameters. There are many different versions of measurement. This paper divides these models into four categories such as the pure statistical model, the labor market model, the VAR model and simplified structure model, compares the strengths and weaknesses of these models and introduces some advanced trend-separate methods including HP filter, BP filter and Kalman filter. Through comparative analysis State-Space model and Kalman filter are chosen to estimate the China's natural rate of unemployment. The article also reviews the domestic existing empirical research.Chapterâ…¤in this paper estimates China's natural rate of unemployment by State-Space model which based on additional expected Phillips curve and Okun's Law. In additional expected Phillips curve the process of the changes in inflation and unemployment was broken into three parts, namely the impact of the natural rate of unemployment, the impact of supply and demand shocks and the impact of natural rate of unemployment which could be estimated as part of the trend by Kalman filter. Okun's Law describes the relationship between unemployment deviation rate and output deviation rate. The model selects the total investment in fixed assets as short-term supply proxy variable.The empirical results show that China's natural rate of unemployment kept rising in the past decades which reflected the staff of state-owned enterprises continued to divert with China's economic transformation, the stock of the labor force kept increasing. The natural rate of unemployment increased rapidly after 2000 which reflected that the implicit unemployment become more and more apparent.Combined with the specificity of the natural rate of unemployment and the determinants of the theoretical model, a series of policy recommendations are supplied in Chapter VI. Solving the employment problem need consider the economic policies such as economic growth policy, industrial policy, the state-owned enterprise reform policy, technology policy, fiscal and monetary policies, labor market policy, population policy, social security, urban and rural policy, wage policy and so on. In the large-scale economic restructuring and industrial structure adjustment, structural unemployment is inevitable. In addition to dealing with the surplus pressure, government should strengthen the building of the labor market and reduce the loss of asymmetric information. The improvement of unemployment insurance system in China is also extremely urgent. It is necessary to build clear conditions for payment of unemployment protection. Standards and duration of unemployment in the period would also like to create a positive re-employment environment. On the other hand, efforts should be made to promote technological progress, training groups of specific technique according to the social and economic development needs, affecting the demographic characteristics of the population in labor market, in accordance with the natural rate of unemployment models including the search matching model, efficiency wage model and other competitive model.