Unemployment in Developed and Developing Countries

Topics: Regression analysis, Income, Gross domestic product Pages: 14 (3992 words) Published: January 18, 2013
Attaining a full employment level, where only a natural level of unemployment exists, is one important macroeconomic objective and they key to this attaining this objective is job creation. This report is a cross sectional econometric analysis of how different factors lead to the creation of jobs in countries with differing Gross National Income per capita. When speaking of job creation, one can expect that the impact and the significant importance of a factor, such as growth rate of the agriculture sector, would vary across developing and developed nations. In nations with high national income the agriculture sector is highly capital intensive and higher growth rates in production are achieved through improvements in crop yield. In such countries we can expect that there would not be a significant relationship between employment and growth of agriculture. However in low income countries, farmers are unable to afford expensive technology, such as hybrid seeds, expensive machinery, etc. Therefore the agriculture sector is largely labor intensive in these countries and therefore we can expect a relationship between growth rate of agriculture and employment in these countries. In this report we look at 5 such factors that may have a different impact on employment among countries of different income groups. Objective

The objective of this report is to find out which factors have a significant impact on employment in low income and high income countries. Also, I have aimed to show that these independent variables have a significantly different impact on employment across countries with different Gross National Income. The Dependent and Independent Variables

The dependent variable taken in this report, as a proxy for employment, is the employment to population ratio. Specifically we will be looking at how different factors lead to changes in the percentage of people employed (above 15 years of age) across different countries. When looking at factors of job creation we can think of 4 major sources: job creation by the agriculture sector, job creation by the manufacturing sector, job creation by the service sector and job creation by foreign direct investment. The first independent variable in this report is the annual growth rate of foreign direct investment. We can expect FDI to be largely important for job creation in countries with low national income, but not important in countries with high national income. The second independent variable taken is the annual growth rate of manufacturing, value added (based on constant local currency). Value added is the net output of the sector after adding up all outputs and subtracting intermediate inputs. It is calculated without making deductions for depreciation of fabricated assets or depletion and degradation of natural resources. The third independent variable taken is the growth rate of the agriculture sector, value added. Here the agriculture sector (as defined by the World Bank) includes forestry, hunting, and fishing, as well as cultivation of crops and livestock production. As noted earlier, we can expect this variable to have a different impact on employment across countries with different national incomes. The fourth independent variable taken is the growth rate of the service sector, value added. Here the service sector includes value added in wholesale and retail trade (including hotels and restaurants), transport, and government, financial, professional, and personal services such as education, health care, and real estate services. Also included are imputed bank service charges, import duties, and any statistical discrepancies noted by national compilers as well as discrepancies arising from rescaling. The fifth independent variable we have taken is the age dependency ratio, per 100 people of working population. Age dependency ratio is the ratio of dependents--people younger than 15 or older than 64--to the working-age population--those ages 15-64. We have...

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Gujrati, N. D.(2004). Basic Econometrics(4th ed.). New Dehli: Tata McGraw-Hill Publishing Company Limited.
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World Data Bank. (2011). World Development Indicators and Global Development Finance. Retrieved from http://databank.worldbank.org/ddp/home.do?Step=2&id=4&DisplayAggregation=N&SdmxSupported=Y&CNO=2&SET_BRANDING=YES
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