Trade, Capital Accumulation, and Structural Unemployment: An Empirical Study of the Singapore Economy
The 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 empi...
| Main Authors: | , |
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, D.C.
2013
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2004/04/4132786/trade-capital-accumulation-structural-unemployment-empirical-study-singapore-economy http://hdl.handle.net/10986/14110 |
| Summary: | The 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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