Econ131 Research Paper. Topic: Unemployment

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  • 7/26/2019 Econ131 Research Paper. Topic: Unemployment


    Ella Lorraine Obra Economics 131

    Charmagne Anne Rimando Introduction to Quantitative Research

    Ma. Monserrat Veloso 12 October 2012

    Mary Joice Zamora

    The Unemployment Condition in the Philippines (1990-2009)


    According to researches, the largest part of the peoples income is coming from paid jobs.

    Thus, it is important to study what factors affect the unemployment rate in a certain country.

    However, variables that may explain unemployment may differ from country to country. In this

    paper, we will use the imports, labor force participation, and GDP as independent variables in

    explaining unemployment rate in the Philippines.

    In this research paper different studies conducted will be presented in Chapter 2; so as to

    show that such relationship between our chosen dependent and independent variables exist. It is

    defined that unemployment is present when those who want to work and are seeking for job

    cannot find one. There are studies that argue that there exists a positive relationship between

    imports and unemployment rate and there are those that do not. The focus of this paper would be

    the positive relationship. The presence of a huge amount of imports in country may affect the

    different sectors which provide jobs for the employment pool. In addition, it is known that as

    GDP increases, the unemployment rate decreases. Labor force participation is also one of the

    important variables that may aggravate the unemployment rate in a certain country (refer to

    Chapter 2).

    In the definition of terms part of the paper, the variables that were defined are the only

    ones that were present in the final model which does not contain any problems of CLRM

    (Classical Linear Regression Model); but the reader will expect to see on the review of the

    literature part the definitions of the other variables that were at first included in the model but

    were found to have problems of CLRM to justify why these particular variables were included

    in the preliminary model in the first place.


    Even though we have found literature saying that the variables imports, GDP, and labor

    force are related to unemployment rate, we are still not certain whether these relationships are

  • 7/26/2019 Econ131 Research Paper. Topic: Unemployment


    present in the condition of the Philippines. Also, in consideration of the mentality of the people

    that imports are better than the local products, it is then important to show, if it is applicable in

    the Philippines, if there is a positive relationship between imports and labor force and

    unemployment rate and that there is a negative relationship between GDP and unemployment


    Research Question

    Are the factors of unemployment stated earlier present in the context of Philippines?

    Do the relationships presented in the literature are also the relationships expected in the



    In doing this paper, we will use secondary data from the National Statistics Coordination

    Board (NSCB) and World Bank. Furthermore, our group used a time-series data from 1990 to

    2009 in order to see the trends of unemployment rate as a function of the independents variables

    we have stated above. Observations have been increased since we have three explanatory

    variables and we need to subtract it from the numbers of observations in order to get the degree

    of freedom. Degrees of freedom means the total number of observations in the sample (= n) less

    the number of independent (linear) constraints or restrictions put on them. In other words, it is

    the number of independent observations out of a total of n observations (Gujarati, 2004: 77)

    If we will just use little observations, the degree of freedom will be low which can be a source

    of a problem. A regression model will be used, generated by using GRETL (Gnu Regression,

    Econometrics, and Time-Series Library) using the method of Ordinary Least Squares. Also, the

    linear model will be transformed into logarithmic model so as to determine which kind of model

    will better show the relationships that we intend to study.

    Definition of Terms


    Unemployment Rate- According to Rudiger Dornbusch. (2008: 604), unemploymentrate is the fraction of the labor force that is out of work and looking for a job or

    expecting a recall from a layoff, in terms of percentage.

    2. GDP- or Gross Domestic Product is the value of all final goods and services produced in

    the country within a given period (Dornbusch,, 2008: 23). GDP in the model is

    measured in terms of current US dollars .The logarithm of GDP in the model depicts the

  • 7/26/2019 Econ131 Research Paper. Topic: Unemployment


    relative change or percentage change in the unemployment rate when the GDP changes

    by 1%.

    3. Labor Force- are the people who are looking for work and are working (Dornbusch,

    2008: 596). The logarithm of labor force shows the relative change in the unemployment

    rate when the labor force changes by 1%.

    4. Imports- from the perspective of the country that is importing, are the commodities that

    are consumed in that country but produced abroad (Dornbusch, 2008: 280). In the models

    presented in this paper, imports are measured in millions of dollars at constant 1985

    prices. The logarithm of Imports represents the percentage change in the unemployment

    rate as the imports changes by 1%.

    Chapter II

    Review of Related Literature


    The problem of unemployment is one of the many things that the countries are facing

    including our country, the Philippines. Since it is one the major things to consider when one talks

    about development it is crucial that we solve this problem. This chapter presents existing studies

    regarding variables that can explain unemployment rate in a country. It will begin through giving

    a brief definition of unemployment which highlights the Philippine description of those

    individuals who are not employed. The next section will be offering different explanatory

    variables for unemployment. Then, delimitation of indicators of unemployment in the

    Philippines will follow. The last section will be providing a conclusion.

    The total absence of work for a certain period of time defines the broad concept of

    unemployment. It takes place when such individuals cannot get an appropriate job despite theirwanting to have one (Stat Informer 2012). Unemployment rate measures the fraction of the

    workforce that is out of work and looking for a job or expecting a recall from a layoff

    (Dornbusch, Fischer, and Startz 2008:42). A kind of living for an individual without work is

    tough, he is financially incapable of buying the basic goods and services he needs. In this regard,

    with high unemployment rate finding a job is a lot more difficult and thus unemployment rate is

  • 7/26/2019 Econ131 Research Paper. Topic: Unemployment


    an essential tool to measure economic progress of a specific nation (Dornbusch, Fischer, and

    Startz 2008).

    In the Philippines, the National Statistical Coordination Board (NSCB) has specifically

    defined those people that are unemployed,

    The unemployed include all persons 15 years old and over as of their last birthday and are reported as:


    without work, i.e., had no job or business during the basic survey reference period; AND


    currently available for work, i.e., were available and willing to take up work in paid employment or

    self-employment during the basic survey reference period, and/or would be available and willing to

    take up work in paid employment or self-employment within two weeks after the interview date; AND


    seeking work, i.e., had taken specific steps to look for a job or establish business during the basic

    survey reference period; OR not seeking work due to the following reasons: (a) tired/believe no work

    available, i.e., the discouraged workers who looked for work within the last six months prior to the

    interview date; (b) awaiting results of previous job application; (c) temporary illness/disability; (d) bad

    weather; and (e) waiting for rehire/job recall (Virola 2005).

    This is the international standard accepted as a new measurement of unemployment.

    International standard is needed aiming to make the unemployment rate of countries comparable.

    Generating a significant assessment of countries labor market would then be possible (Stat

    Informer 2012).

    Unemployment rate of a country is explained by several factors and is seen through

    different perspectives. One of which are Structuralist theory, Non-Accelerating Inflation Rate of

    Unemployment (NAIRU), and the chain reaction theory. Structuralist theory argues that lengthy

    variations in unemployment rate are significantly explained by the financial wealth of thecountry. NAIRU approach says otherwise, it points out the role played by some fundamental

    shocks and a set of unemployment-prone labor market institutions, but it is evolving to a pure

    institutionalist view (Agnese and Sala 2008:2). For instance, merely looking to changes in labor

    market body swings on unemployment can be understood. On the other hand, capital

    accumulation and productivity or working age population as examples of growth variables plays

    a vital role in determining how well the labor market performs. This