Trade, capital accumulation and structural unemployment: an empirical study of the Singapore economy
AbstractThe past three and a half decades witnessed a distinctly declining trend in Singapore's unemployment rate, which dropped from an average annual rate of 7.85 percent in 1966-70 to 2.74 percent in 1991-2000. The authors seek to identify and empirically examine the factors that have influenced Singapore's unemployment rate in an environment of low and stable inflation. They incorporate a union bargaining framework into a standard-factors trade model, in which an increase in the relative price or capital stock in the export sector raises the demand wage that firms can afford to pay relative to workers'fall-back income, and consequently lowers equilibrium unemployment. The magnitude of the effects depends on the fall-back income, the weight unions attach to employment, and the elasticity of labor demand, which the authors estimate using data on Singapore. The results show that labor unions in Singapore care more about employment than wages. Together with a small fall-back income and elastic labor demand, the authors show that given the same percentage change in relative export prices and capital accumulation in the export sector, the effect on unemployment is larger for the former. However, the empirical importance of capital accumulation in the export sector dominates increases in relative export prices in reducing unemployment since the manufacturing sector experienced a tremendous increase in capital inputs throughout the sample period, whereas the relative price of exports experienced a far smaller increase and only in the early part of the sample period. The authors conclude that through a very open trading regime, the tremendous increase in capital stock of the exporting sector has been the main reason behind Singapore's declining unemployment rate.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Development Economics.
Volume (Year): 77 (2005)
Issue (Month): 1 (June)
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Web page: http://www.elsevier.com/locate/devec
Other versions of this item:
- Hiau Looi Kee & Hian Teck Hoon, 2004. "Trade, Capital Accumulation and Structural Unemployment: An Empirical Study of the Singapore Economy," Working Papers 06-2004, Singapore Management University, School of Economics, revised Mar 2004.
- Hiau Looi Kee & Hian Teck Hoon, 2004. "Trade, capital accumulation, and structural unemployment : An empirical study of the Singapore economy," Policy Research Working Paper Series 3272, The World Bank.
- E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
- J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
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