Singapore Labor Market
Table of contents
TABLE OF CONTENTS 1
1 Introduction 1
2 Literature review 2
3 Methodology 3 3.1 Inflation and Unemployment rates in Singapore 3 3.2 Data 4 3.3 Estimation 4
4 Regression resultS and data analysis 5 4.1 ADF Test Results 5 4.2 Co-integration test and Long-run model 5 4.3 The Error Correction Model 6 4.4 Diagnostic Tests for ECM model 7
5 Policy Implications 8
6 Conclusion 9
7 Bibliography 10 Introduction
Inflation and unemployment are two major indicators of the health of any economy. Milton Friedman, in the Nobel Memorial Lecture on December 13 1976 on the topic of ‘Inflation and Unemployment’, mentioned that ‘Many countries around the world today are experiencing socially destructive inflation, abnormally high unemployment ...’
From the statement above, we understand the importance of both inflation and unemployment as factors in which policymakers around the world use when making decisions that directly affect the economy.
To be more precise, many economists and policymakers are interested in the relationship between the two factors. There has been much controversy about this relationship that is intertwined with the relative role of monetary, fiscal, and other factors affecting nominal demand. Friedman (1976) indicated that:
‘The effects of change in aggregate nominal demand on employment and price levels may not be independent on the source of the change, and conversely the effect of monetary, fiscal, or other factors on aggregate nominal demand may depend on how employment and price levels react.’
This statement underlines the significance of the need to understand the correlation between unemployment and inflation rate.
In fact, many studies have looked into this topic since World War II, and the most famous being the paper of Alban William Phillips in 1986 titled The Relationship between Unemployment and the Rate of Change of Money Wages in the United Kingdom 1861-1957. The result of this paper
TABLE OF CONTENTS 1
1 Introduction 1
2 Literature review 2
3 Methodology 3 3.1 Inflation and Unemployment rates in Singapore 3 3.2 Data 4 3.3 Estimation 4
4 Regression resultS and data analysis 5 4.1 ADF Test Results 5 4.2 Co-integration test and Long-run model 5 4.3 The Error Correction Model 6 4.4 Diagnostic Tests for ECM model 7
5 Policy Implications 8
6 Conclusion 9
7 Bibliography 10 Introduction
Inflation and unemployment are two major indicators of the health of any economy. Milton Friedman, in the Nobel Memorial Lecture on December 13 1976 on the topic of ‘Inflation and Unemployment’, mentioned that ‘Many countries around the world today are experiencing socially destructive inflation, abnormally high unemployment ...’
From the statement above, we understand the importance of both inflation and unemployment as factors in which policymakers around the world use when making decisions that directly affect the economy.
To be more precise, many economists and policymakers are interested in the relationship between the two factors. There has been much controversy about this relationship that is intertwined with the relative role of monetary, fiscal, and other factors affecting nominal demand. Friedman (1976) indicated that:
‘The effects of change in aggregate nominal demand on employment and price levels may not be independent on the source of the change, and conversely the effect of monetary, fiscal, or other factors on aggregate nominal demand may depend on how employment and price levels react.’
This statement underlines the significance of the need to understand the correlation between unemployment and inflation rate.
In fact, many studies have looked into this topic since World War II, and the most famous being the paper of Alban William Phillips in 1986 titled The Relationship between Unemployment and the Rate of Change of Money Wages in the United Kingdom 1861-1957. The result of this paper
Bibliography: Asiaone. (2008). Unemployment rate unchanged in third quarter: MOM. Retrieved November 3, 2008, from http://www.asiaone.com/News/AsiaOne%2BNews/Singapore/Story/A1Story20081031-97438.html Atkeson, A., Ohanian L Burda, M. and C. Wyplosz, (2001).Macroeconomics. Oxford University Press, New York, pp: 281-284. Bhanthumnavin, K. (2002). The Phillips curve in Thailand. Gorman Workshop Series. University of Oxford, pp: 3-4 Dornbusch, R., S Friedman, M., (1968). The Role of Monetary Policy. American Economic Review, 58: 1-17. Haydam, N., (2002). The Principles of Macroeconomics. Van Schaik, Pretoria, pp: 216-217. Lucas, R.E. and L.A. Rapping, (1969). Real Wages, Employment and Inflation. Journal of Political Economy, 77: 721-754. Low, V. (1994). Outlook for the Singapore Economy. The MAS Model: Structure and Some Policy Simulations, Transglobal Publishing, Singapore, pp: 19-32. McConnell, C.R. and S.L. Brue, (2002). Economics: Principles, Problems and Policies. McGraw-Hill, New York, pp: 149. Phelps, E.S., (1967). Phillips Curves, Expectations of Inflation and Optimal Employment Over Time. Economica, 34: 254-281. Phillips, A.W., (1958). The Relation Between Unemployment and the Rate of Change of Money Wages in the United Kingdom, 1861-1957. Economica, 25: 283-299.