Macroeconomic Factors Affecting Unemployment Rate In China

RESEARCH OVERVIEW 

 1.0 Introduction 

 In research overview, a brief introduction towards the research topic will be brought into discussion. Unemployment is a big league and critical issue across various countries including China. Thus, all the relevant ideas, key factors and concepts would be discussed at first including the macroeconomic factors that affect the unemployment rate. Based on official unemployment rate reporting by the government of China, near 4% of unemployment rate be announced and carried along for five years. However, Fathom Consulting, an independent macro research which contributes macro economy’s advices and guidance to various leading corporate mentioned unemployment rate in China possible to be tripled across years in fact. Therefore, the investigated problem will be described in the following components of the chapter. The problems and research objectives should be related clearly to engage well to the core objective of the study particularly in order to bring out the main investigation of this paper which is the macroeconomic factors influencing unemployment rate varies. Following up with the identification of research questions and hypotheses, this is to provide a brief guideline of the study to the reader on the main research. Furthermore, each chapter of this research will be outlined in chapter 1. A summary of chapter 1 would be made before the start of chapter 2. 

1.1 Research Background 

 One of the major economic problems facing by various developing countries is unemployment. According to Cai & Chan (2009), global economic crisis 2008 – 2009 affect greatly on the employment of urban workers in China. Residents in countries to get a job have been getting harder from time to time due to higher jobless rate. Such condition is far worse and getting more concern by policy makers as well as economists across years. Both parties are constantly monitor and evaluate on the current situation and take adequate actions when needed based on the reliability and availability of information and statistics.   

Determination of few main influences causes unemployment in China majoring on the macroeconomic factors explaining on the main objective of this research. This may be brought into discussion of the significant relationship among those variables with unemployment meanwhile. On top of that, long-run relationship will be tested in our research though. According to previous researchers, there are four common factors which affect greatly towards unemployment rate. Those factors are inflation (INF), GDP growth (GDP), population (POP) and foreign direct investment (FDI).   

Inflation can be taken into consideration of the main disaster to affect employment rate most of the time. It can be categorized into the fundamental part of the market economy. It is proven that inflation and unemployment has a negative relationship according to the studies of Li and Liu (2012), Vermeulen (2015) and Yelwa, David, and Awe (2015). Philip Curve contributes valuable understanding and comprehension for policy makers when it comes to the analysis between inflation and unemployment (Furuoka & Munir, 2014). However, there is research denying on the validity of Phillip Curve as well. Based on Alisa (2015), Philip Curve did not apply to short or long run. Countries have to pass through a level of stabilization before achieving economic stabilization and full employment. 

In economics, some of the researchers believe in significant relationship between the growth rates of GDP of an economy versus unemployment rate. This explanation can be obtained from Abdulla (2012) and Zivanomoyo & Mukoka (2015). Okun’s Law states both real GDP and unemployment rate having negative relationship in theoretical point of view. However, there are empirical results disclosed that Okun’s Law does not completely giving strong confirmation for unemployment rate and economic growth all the time based on the research from Kreishan (2011) and Dunsch (2016).  

The growth of GDP of an economy can significantly give impact on the relationship of population growth with unemployment rate (Orumie, 2016). An increment or decrement in unemployment rate could be related to population growth. Without an adequate control over population of a country may cause employment problems by giving inequality of income distribution to all residents in that country. This proven population and unemployment rate has a significant relationship (Imoisi, Olatunji, & Ubi-Abai, 2014). According to Aqil, Qureshi, Ahmed, and Qadeer (2014), a negative relationship of population growth rate affect unemployment rate significantly.  

Foreign direct investments (FDI) has become a concern and increased importance to researchers and policy makers in influencing the economy. Inflows of foreign direct investments can be the factor that boosts economic growth and significantly impact on unemployment rate of countries as higher unemployment reflects higher inflow of foreign direct investments (Strat, Davidescu, & Paul, 2015). In fact, FDI has both positive and negative effects either direct or indirect on employment of an economy in the sense of quantity, quality and location.   

As unemployment of a country does not reflect a healthy sign to economy, therefore, this study is to figure out determinants majoring on macroeconomic that influence the unemployment rate in China across years. On top of that, long-run effect will be figured too. 

1.2 Problem Statement  

People in today’s competitive market are actively searching for jobs and mentally prepare to any kind of jobs provided at any level of wages are so called unemployment. Large population often an issue towards unemployment rate within a country. As the lack of absorption capacity, such issue becomes a subject matter to countries in recent decades. Generally, Government aims on the creation of working opportunities with all the available resources in the productivity industries. Government regularly pays lots of attention and concern on this issue as unemployment not only can affect socio-economic problems of a country, it could highly lead to high migration though. If residents unable to get a job in their home country, they attempt to work oversea if there are opportunities offer to them. Thus, economic growth of a country would greatly being affected. In long-term, issues such as financial problems, crimination, poverty, inequality standard of living and mentality may occur (Maqbool, Mahmood, Sattar, & Bhalli, 2013).   

According to the data retrieved from World Development Indicators (Figure 1.1), unemployment rate in China does not fluctuate much and had slightly increment over the years. However, China had a sharp decrement of unemployment rate to 2.90 % in year 2010. This can assume to be resulted due to GDP of China grew 10.3% and decrement of inflation to 3.3% in year 2010 as per official announcement by China.  After that, it goes up to 4.10 % and hovered for years till current. 

Despite of the official announcement by China regarding unemployment rate in China, most of the economists and researchers doubt and disagree on the data provided. They claimed that this is unacceptable and it is possible to be tripled up over the period from 2011 to 2014, according to Fathom Consulting.  

There are a group of economists making collaboration related to such matter. According to Feng, Hu and Moffitt (2014), they were estimated the real unemployment rate of China.  

There are few reasons contribute towards the insensitivity to economics fluctuations as well as low level of “registered” unemployed people over total labor force participation rate. One of the reasons is lacking of Hukou status by the residents. Besides, low standards of employment benefits provided people to omit registration with local employment service agencies. Moreover, there might be data falsification and errors in aggregation (Feng et al., 2014). 

In a nutshell, labor force participation rate is significant for the estimation of true unemployment rates based on their research. The unemployment rate of China remained mysterious over years for the reason of underestimation of the true levels of unemployment and trend-biasing. Due to data limitations, Feng et al. (2014) claimed that the research they did was only stage one over a full understanding of the Chinese labor market over last few decades. Anyhow, few studies figured out statistics of China are generally least usable and informative based on the research of the validity of China’s GDP figures (Fernald, Hsu, & Spiegel, 2014; Holz, 2014).  

Assuming that the real rate of unemployment in China could be higher over years as stated by Fathom Consulting, then factors influencing unemployment rate are important to address for such relationship as most of the researchers claimed that those factors are inflation, GDP growth, population and foreign direct investment.  Most of the empirical findings in this study were delivered with this hypothesis which subjected to the question