Short-Run and Long-Run Relationship of Selected Labor and Macroeconomic Indicators of Employment Rate the Case of National Capital Region

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University of Santo Tomas – Economics Society

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SHORT-RUN AND LONG-RUN RELATIONSHIP OF SELECTED LABOR AND MACROECONOMIC INDICATORS OF EMPLOYMENT RATE: THE CASE OF NATIONAL CAPITAL REGION

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By *Maynard Jasper R. Dolot *Mikhael D. Laurente *Ver Lyon Yojie V. Pilitro

College of Commerce and Business Administration Business Economics Department University of Santo Tomas 1015 España Street, Sampaloc, Manila, Philippines

November 17, 2012

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*Student, University of Santo Tomas, College of Commerce and Business Administration, Business Economics Department

University of Santo Tomas – Economics Society

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University of Santo Tomas – Economics Society ACKNOWLEDGEMENTS

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The authors of this paper would like to express their sincere gratitude to their beloved parents for their love and moral support in doing this paper; the University of Santo Tomas, College of Commerce and Business Administration-Business Economics Department for giving us the opportunity to acquire skills and knowledge to better enhance the author’s capabilities, to the UST-Economics Society and to the author’s Business Economics colleagues for the support and encouragement while the authors are doing this paper. Also, the authors would like to thank our chairperson, Mr. Ronald B. Paguta, Mr.Al FaithrichNavarrete, MA, and Asst.Prof. Marie Antoinette L. Rosete, MDE, who continue to nourish the author’s thoughts and by giving their blessing to the authors to join in this research paper competition. And most importantly, the researchers want to thank the Almighty God for the love that He gave to us, for always guiding the authors, for the knowledge that He bestowed upon the authors, and for the unending grace that the authors receive everyday.

University of Santo Tomas – Economics Society ABSTRACT This study provides evidence on the short-run and long-run relationship of selected labor and macroeconomic indicators to employment rate and to determine the possible shocks or innovations as well as its degree of influence that can significantly change the variables in the National Capital Region (NCR) in the Philippines using time-series data from 1985-2010. Using Johansen co-integration test it was concluded that there is a long-run association between labor force participation rate, regional output, and real wages are significant factors of employment rate. Vector error correction model (VECM), showed that the variables have significant relationship in the long-run. On the contrary, the results showed the insignificance of the relationship between the variables in the short-run. Using impulse-response function, employment rate and regional output generally showed a positive impulse on employment rate. However, it also revealed that shocks of labor force participation rate and real wage negatively influenced employment rate. Variance decomposition showed that in the short-run, employment rate shocks or innovations has the most influence on employment rate but in the long-run, it showed that shocks or innovations on employment rate, labor force participation rate, and real wage almost shared the same influence on employment rate. JEL Classification: J01, J11, J21 Keywords: Employment Rate Labor force Participation Rate, Regional Output, Real Wage, Johansen Co-integration Test, Vector Error Correction Model, Impulse-Response Function, Variance Decomposition.

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University of Santo Tomas – Economics Society TABLE OF CONTENTS Page Title Page Endorsement Letter Acknowledgements Abstract Table of Contents List of Tables List of Figures Chapter 1: Introduction Chapter 2: Review of Related Literature 2.1 Labor Force Participation Rate and Employment 2.1A Long-Run 2.2B Short-Run 2.2 Output and Employment 2.1A Long-Run 2.2B Short-Run 2.3 Real Wage and Employment 2.3A Long-Run 2.4B Short-Run Chapter 3: Research Framework 3.1 Research Simulacrum 3.2 Research Method i ii iii iv v vii viii 1 3 3 3...
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