An empirical and comparative analysis of Taiwanese unemployment and wages

Abstract

Taiwan has long been recognized as an economic entity highly dependent on its international trade. The thesis discusses its labour predicament at both macro and micro levels, in terms of unemployment rate and labour wage determination, in a framework of international trade studies.

This thesis start with its attempt to examine if cyclical export gap is in fact beneficial to the local unemployment rate. Within an Autoregressive Distributed Lag(ADL) framework of Okun coefficients, cyclical export gap is added as an extra explanatory variable, to examine if Dutt et al.’s prediction that unemployment and trade openness are negatively related can be statistically supported with Taiwanese data. Furthermore, the Chow test demonstrates that there are “shocks” that would create structural changes, at 1990q1 when Taiwan reinitiates trade with China, and at 2002q1, when Taiwan joined WTO as a member country. Lastly, a Quandt Likelihood Ratio test is included so to locate the date when any additional structural break is most likely to happen.

This thesis also analyses the impact of different Taiwanese government policies affecting wages. For the past two decades, an expanding education policy has been implemented regardless of the alternating parties in administration. Also, the Taiwanese government maintained a tolerant policy regarding the expansion of the real-estate market bubble. Using three different estimators, this thesis finds evidence supporting that the wages of the youngest cohort suffer from lower education returns and the crowding-out effect of corporation indebtedness on real property reinforced by the housing bubble. The thesis could not find evidence supporting that the preferential bilateral free trade agreement between Taiwan and China, known as the Economic Cooperation Framework Agreement, is benign to Taiwanese labour wages.

The thesis also compares how the same wage determining factors would have similar or different impact on UK wages, so to see: How are the wage determinants(e.g., education attainment, industrial investment in real estate) affecting the UK labour force, in a similar or different ways as opposed to their Taiwanese counterparts? And how do such impacts change at different structural breaks?

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Identifiers

ORCID for Jan Podivinsky: orcid.org/0000-0002-4921-1189

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