The Relationship Between The Changes Of China’s Employment And Business Cycle

With the deepening of the extent of Chinese economy adapting to market mechanism, the labor factor is lagging behind in the process, so that the employment issues has always been a hard problem in the economic development process. If the employment issues cannot be solved well, the realization of economic development stable and people living in a peaceful life is hard to complete. From the theoretical origin, employment issues is a macroeconomic problem, it belongs to business cycle research areas. The reality and seriousness of the employment issues in China make us must give enough attention to it. A large number of the foreign literatures are about the relationship between employment cycle and business cycle and they studied the relationship from different aspects and different angles. While domestic research space is also great. Most of the domestic researches showed that, since the reform and opening up, the relationship between employment and economy in China presented strong non-uniformity, employment growth and economic growth also showed incompatibility. The theorists give a variety of explanations of this phenomenon from different situations, such as different economic structures, different policies and different industries, many economists’ultimate goal is on the employment elasticity.Most domestic scholars played emphasis on the linear relationship between employment changes and business cycle fluctuations, while ignoring the non-linear characteristics at different stages of business cycle. This article seeks to departure from this deficiency, we divided the business cycle into three different district system, that is, slow growth stage, appropriate speed growth and high growth stage to study the relationship of short-term fluctuations in each district system and comparative analysis to adapt to propose policy recommendations. The paper uses the three regimes Markov Switching-Vector Error Correction Model (MS-VECM), the variables selected quarterly year-on-year growth rate of gross domestic produce(GDP) and the number of employed persons data, sample ranges from1993to the second quarter of2012. Firstly we processed the selected data and then to test whether there is cointegration relationship between the two variables, using the estimated cointegration vector to compute the error correction term, it will come as the exogenous variables of the model. Finally we analyzed the relationship between the employment growth rate and output growth rate in different regimes.The empirical results show that the slow growth stage has the longest average duration and its self-sustaining probability is the highest, but the appropriate speed growth stage has the highest probability. In different regimes, employment growth rate and output growth rate have the basically same trend, but the quantitative change is not fully consistent. At the low growth stage, output grows in a low speed while the number of employment is in a sharp decline; at the appropriate speed growth stage, the two variables also present non-uniformity, the employment growth rate is still negative in some period, and gradually rise to positive value, which means that along with the economy growing strong, the amount of employment reduce in a decreasing speed until absolute increasing; while at the high growth stage, they shows consistent fluctuation, the high speed growth of output drives the increase of employment.One of the innovations of this paper is that introducing the regime switching into the analysis of the relationship between the employment changes and economic fluctuations, no longer limited to linearity. The other one is using a new approach of impulse response analysis, this approach unlike the traditional impulse response to the shock of Gaussian innovation, it discuss the response to regime switching. The paper studies the response of employment and output to regime switching, the conclusion is that shock path is basically same, the output response path has a short-term fluctuations in early phases. Even so, there are some inadequacies in the study. This article did not consider other factors to characterize the economic fluctuations, due to data availability restrictions, only consider employed in urban areas, these deficiencies require further deepen research.