Research On Effect Mechanism Of Government Expenditure For Social Safety Net And Employment

Employment has a vital bearing on the people’s livelihood. Of the government expenditure,expenditure for social safety net and employment effort (ESSE)is one of the items which havethe closest and most immediate connection with employment. So, this master’s thesis studyhow this expenditure affects employment and unemployment in China. Concretely, this thesistry to seek the mechanism by which ESSE affects employment and unemployment, and onwhat these effects theoretically would be. At the same time, this thesis also focus on the test ofthe hypothesis that ESSE has been affecting employment and unemployment.Our study is based on the perspectives of regional differences. First, there is significantdifference in ESSE between different regions. Second, there is also significant difference inemployment or unemployment between different regions. This two coexisting regionaldifferences build the basis of this research. If we find ESSE’s regional difference couldsystematically explain employment or unemployment’s regional difference, this would beevidence supporting the hypothesis that ESSE has been affecting employment orunemployment.At the theoretical aspects of research, after discussing the general frame of how fiscal policiesaffecting employment, this thesis analyze the difference in effects on employment orunemployment between subsidy on the social security and subsidy on employment effortthrough different mechanism. Particularly, it might happen that active employment policiessupporting by subsidy on employment effort would be inefficiency in a segmented market. So,we can not theoretically determine what "net effect" of ESSE on employment orunemployment is.At the positive aspects of research, this thesis use econometric model to empirically test howESSE affects employment or unemployment. By using "panel data" model combinginstrumental variable method, the estimation bias stemming from endogenous explanatoryvariables was controlled to the least degree. So, our study conclusion provides reliableempirical evidence about ESSEE how to affect employment or unemployment. To looking forsuitable instrumental variables, this thesis first explores in depth the factors influencingmagnitude of ESSE. By "panel data" model, we find variables representing fiscaldecentralization are suitable instrumental variables. Then, By using instrumental variablemethod to estimate "panel data" model, we find some evidence supporting the hypothesis thatESSE has been affecting employment or unemployment. Practically speaking, empiricalevidence shows increase in ESSE would lead to significant employment increase. Meanwhile,Registered Unemployment Rate in Urban Areas would also be raised. These indicates in orderto play a more important role in stimulating employment and reduce unemployment, at thesame time of increasing financial input to the system of social safety net and employmenteffort, the government should make greater efforts to optimize expenditures’ structure.