Employment Effects Of Fiscal Policy

Employment is vital to national livelihood. Employment is not only an economic issue but also a political issue related to the national economy. How to achieve full employment has always been an important and tough issue facing the world’s governments and economists.Due to the financial crisis, the weak recovery of the world economy results in a sharp drop in external demand and a serious global unemployment problem, which further exacerbate the severe employment situation of the country. At the same time, due to the downward trend of the domestic economy, the accelerating pace of economic restructuring, rising wages, high inflation and other factors, the employment situation becomes more instable and uncertain. In addition, the first absolute decline of workers’ age in2012indicated the gradual shift of Chinese labor force into the shortage era and the arrival of an aging era. All aforementioned factors make our employment problem more particular and complex. Theories and practices show that the government must shoulder an inescapable responsibility for the expansion of employment because of the existence of some degree of failure of the market mechanism in solving the employment problem. Fiscal policy as one of the national macro-regulation tool plays an irreplaceable important role in economic growth, industrial restructuring and employment promotion. For a long time, the Chinese government has put employment as one of the key elements of its economic work, and introduced a number of financial and tax incentives to promote employment, though the impact of its fiscal policy on employment and whether the desired effect can achieved need to be further verified. This dissertation intends to comb the theory and practice of employment effects of fiscal policy, and on the basis of in-depth analysis about the mechanism of the employment effects of fiscal policy, empirically examines the impact of the fiscal policy tools and adjustment on employment, and thus gives an insight into ways to improve the fiscal policy system so as to promote the employment. The dissertation is divided into seven chapters, and the main body includes three parts:the theoretical analysis, empirical examination and policy recommendations. Among them, the first chapter is introduction; Chapter2is theoretical basis section; Chapter3is practical analysis section; Chapter4-6is empirical analysis section; Chapter7is section of a comprehensive evaluation and optimization path.Chapter One is the introduction and covers the background and significance of the study, review and comment on the related literature home and abroad, proposes research methods and specific structural arrangements and points out innovation as well as shortcomings.Chapter Two is the theoretical analysis of the employment effects of fiscal policy. It explains the basic theory of the employment and the mechanism of the employment effects of fiscal policy, so as to provide a theoretical basis for the empirical analysis. First, it elaborates on a general analysis of employment, including the basic theories, historical interpretation and review of modern Western theory of employment and the factors of employment; secondly, it analyzes the mechanism of the employment effects of fiscal policy. Based on a general analysis of employment, it analyzes the operational mechanism of the employment effects of fiscal policy at both the macro and micro level.Chapter Three is the practical analysis of the employment system and fiscal policy. It reviews the history of the evolution of the employment system and the promotion of employment of fiscal policy, and analyzes the employment situation and its causes. It is a realistic analysis section, and intends to provide a realistic basis for the empirical analysis and policy recommendations. First,it review s the historical evolution of Chinese employment system; secondly, it overall judges and analyzes on China’s employment situation and projects trends of employment. Third, it analyzes the fiscal policy of promoting employment in the period of China’s planned economy and after the reform and opening up.Chapter Four is the empirical analysis of the employment effects of fiscal policy based on the labor market supply and demand equilibrium. It analyzes mainly from the micro level. In accordance to endogenous growth model and based on the optimal selection of labor supply and demand of households and businesses, it deduces a theory model by mathematical deduction of the impact of the fiscal policy instruments on labor supply, labor demand and labor market equilibrium, and conducts an empirical analysis on Chinese macro-and micro-economic data. First, an empirical analysis of labor supply effect of fiscal policy. It studies mainly from the total labor supply and labor supply structure. Second, an empirical analysis of labor demand effect of fiscal policy. Third, an empirical analyzes of the effects of fiscal policies on labour market equilibrium. This section uses factor analysis method for testing the effects of fiscal policies on labor market equilibrium.Chapter Five is the empirical analysis of the employment effects of fiscal policy, an analysis based on the macroeconomic equilibrium, growth and fluctuations. From a macro perspective, this chapter elaborates on employment effects of fiscal policy in three parts. First, through macroeconomic equilibrium analysis framework, it empirically analyzes the impact of fiscal policy on employment by using Chinese panel data from the overall level. Second, by means of economic growth, it empirically establishes a simultaneous equation model and tests the interacting process and result of fiscal policy variables, economic growth and employment growth, with an attempt to restore conduction path from fiscal policy to economic growth, to the employment. Third, from a dynamic perspective, it analyzes the linkage effect of fiscal policy, economic and employment fluctuations by using vector auto-regression model.Chapter Six is the empirical analysis of the employment structural effects of fiscal policy from the industrial, urban and regional perspective. It is to examine the macro-fiscal policy and employment effects. From the overall and structure perspective, it analyzes the effect of fiscal policy on the structure of industrial, urban and regional employment using panel data.Chapter Seven is a comprehensive assessment and optimization of fiscal policy on the employment effects. With reference to the national employment situation and the present economic goals, it is to propose the optimal path of using fiscal policy to further national employment, a path that takes in the conclusions of both the realistic and empirical analysis.In this dissertation, it maybe draws on some innovations by expanding and deepening on this topic based on existing research.First, the research perspective has multidimensionality. It analyzes the employment effects of fiscal policy from various dimensions, ranging from the micro to the macro, from the whole to the structural, from the static to the dynamic.(Ⅰ)The analysis combines micro and macro. In the theoretical analysis, firstly, we illustrate the micro-employment effects of fiscal policy, then based on the micro-effect, combined with the aggregate demand-aggregate supply model, the multiplier principle, it systemly studies macro-employment effects of the fiscal policies. At the same time, empirical section also continues from micro to macro definitions.(Ⅱ)The analysis combines the whole and the structural. In the mechanism analysis of the employment effects of fiscal policy, it summarizes the employment effects of fiscal policy’s transmission path and theoretical model, then expounds how fiscal policy instruments affect the labour market equilibrium, the macroeconomic development and employment decisions.(Ⅲ)The analysis combines static and dynamic. The full text of the empirical test section is given priority with static analysis. While studying the economic fluctuation as a transmission medium, mainly from the perspective of dynamic, we test fiscal policy, economic volatility and employment dynamic linkage effect, by vector autoregressive model to display the economic the process and impact results of economic variables shocks.Second, the theoretical analysis has expansibility. In describing the effect mechanism of fiscal policy, this dissertation begins with its micro-economic impact on the business and personal behavior patterns, to the labor market equilibrium adjustment, to the changes of total supply, demand and economic growth. Then, it describes the economic growth and economic structure from the final form of fiscal policy adjustment, to its further effect on the entire macro employment and structure.Third, its mathematical model has expansibility.(Ⅰ) This dissertation establishes the Todaro Model with financial variables. Todaro model is mainly used to explain the decision-making process of rural labor to urban migration in developing countries. In this paper, we expand the model by introducing tax and expenditure variables. And this new labor mobility decision model is used to explain how fiscal policy affect the flow of labor between industries.(Ⅱ)it expands the endogenous growth model with tax and expenditure factors. We further extend endogenous growth models by leading Tax and expenditure factors into the Barro model. In the model, we take the government social security spending (including social security and employment expenses) as part of the family effect function, pull science, education, culture, health education spending and government investment expenditure in production functions. By solving the families, businesses and governments to achieve optimal behavior when competing economic equilibrium, we solve the mathematical results of tax and expenditure on the employment impact.Four, its empirical analysis has scalability:(Ⅰ) It further analyzes in depth the impact of personal income tax on labor supply structure by using micro-simulation method.(Ⅱ) It studies the impact of fiscal income and expense on labor market equilibrium by using factor analysis method.(Ⅲ) It, by using simultaneous equation model, analyzes process and results of the interaction in an economic mechanism where fiscal policy, economic growth and employment growth interacts with each other.(Ⅳ) It tests and sub-divides the impact on labor supply and demand of employment expenses, individual and corporate social security burden.