Dissertation > Economic > Economic planning and management > Labor Economics > Countries in the world of labor economic profile > China > Labor force

The Measure of Natural Rate of Unemployment in China-Based on the Model of Labor Force Circulation

Author HuangYing
Tutor ZhangYunFeng
School Nanjing University of Finance and Economics
Course Western Economics
Keywords Worker Flow Natural Rate of Unemployment Kalman Filtering
CLC F249.21
Type Master's thesis
Year 2013
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With the aggravation of economic globalization, the inflation rate keeps going up,at the same time, the stock market downturn and increasing unemployment caused bythe economic crisis still exist. China’s macroscopic economy is undergoing fasttransformation, strenuous economic and industrial structure changes lead to thechange of labor structure, as a result, the inflation rate keeps rising up. However, thecomposition of unemployment need to be made certain, which means a lot to theanalysis of China’s inflation rate composition and the formulation of macro-controlstrategies.In the macroeconomics, the rate of unemployment can be divided into three parts:the frictional unemployment, the structural unemployment and the cyclicalunemployment, among which the first two can be called the natural unemployment.The theory of unemployment was first proposed by Friedman, who believe that thenegative relationship between inflation and unemployment explained by the Philipscurve are invalid in the long-term. Most economists take the Philips curve as theirmain methods to measure the natural rate of unemployment.This paper focus on an new angle to measure the natural of unemployment: on thebasis of analysis of the labor force flow, set up an micro-model and calculate the rateof unemployment when the labor market reach to an stability. As a result, China’sunemployment rate has been increasing since2001, from6.8%in2001to12.1%in2010. The main reason is the increasingly growth of the unemployment rate ofworking people. In order to verify the accuracy of the natural rate of unemployment,we also used the Kalman filter and the HP filter, the results of the two methods showsa small value and a declining trend of the natural rate of unemployment: except for2009and2010, there has a declining trend and it fluctuated around4%. Although thethree methods have different conclusions in the natural rate and its trend, this paperoffers an effective foundation for the consecutive reach.At the end of the paper, we proposed some policy recommendations for thereduction of natural unemployment the improvement of employability of collegegraduates and the regional economic development.

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