The Employment Elasticity Of China : Trend And Determinants Analysis

The four objectives of The four objectives of macroeconomic policy are: high GDP growth, low unemployment, low inflation and balance of payments. Employment elasticity, as an employment-related economic indicator, often gives valuable insights of measuring the ability of economies and generating sufficient employment opportunities for their populations. The most basic definition of employment elasticity is the percentage change in employment in an economy or a region associated with one percentage change in the economic output, measured by gross domestic product. It is an important indicator of the absorptive capacity that measures the economic growth on employment.There are several methodologies utilized for calculating elasticity. In this article, Double logarithmic model is used to estimate the employment elasticity of china .As China's economy is in a transitional period, the economic structure and the industrial structure have undergone great changes. Using ordinary least squares (OLS) to estimate the model, deviations or spurious regression may occur. There might exist deviations or spurious regression if use ordinary least squares (OLS) to estimate the model.In order to describe this relationship correctly, we use the time-varing parameter model, establish a state space model, and use Kalman filtering method to estimate the employment elasticity.The estimated results show that the employment elasticity of 1952-2009 changes between 0.12-0.22, and the value of employment elasticity means China's economic growth has a certain role in promoting employment, that for every 1% change in economic growth, employment numbers will increase (0.12-0.22)%.There are two characteristics of the trend: (1) the overall employment elasticity of china increased first and then decreased. (2) China's overall level of employment elasticity is relatively low, the employment pressure is large, and there are significant gaps while compared with developed countries.After 1990s, employment elasticity of China began declining. Therefore, there is not only theoretical significance, but also practical significance of studying the determinant of employment elasticity.In this paper, it considers China's actual national conditions, analyzes by virtue of logic to structural factors, labor supply factors, institutional factors and natural resources and other factors on employment growth and economic growth, and builds a quantitative model in order to create theoretical starting point.According to cointegration and error correction model of the empirical results, there are long-term equilibrium relationship between the explanatory variables: employment elasticity (ELAS) and the the industrial structure (R3), scientific and technological progress (TFP), Average propensity to consume(APC) , According to the empirical results of co-integration and error correction model ,there is long-term equilibrium relationship between employment elasticity and industrial structure,technological progress,the average propensity to consume.Based on the estimated results of error correction model ,when the short-term fluctuations deviate from the long-term equilibrium,it will be -0.092645's efforts to adjust back to equilibrium from non-equilibrium state. The consequence of Granger causality test indicate that there is only one-way causal relationship among ELAS,R3 and APC.Finally, based on the results of the theoretical analysis and empirical analysis, this paper proposes some policy recommendations about increasing the employment elasticity for the decision-making of the government.