United States and Taiwan Unemployment Rates Essay Example for Free

United States and Taiwan Unemployment Rates Essay This paper aims to compare the unemployment trends of the United States (US) and Taiwan from 1980 to 2007, and briefly discuss the factors affecting the trends of each country. The 28-year time-series data presented are from the World Economic Outlook Database of the International Monetary Fund. Unemployment Trends of the US and Taiwan The figure below shows divergence in the US and Taiwan unemployment rates over the past 28 years. The US has a downward unemployment trend, while Taiwan unemployment rates moved in the opposite direction from low to high level unemployment Fig. 1. US and Taiwan Unemployment Rates, 1980 – 2007, World Economic Outlook Database October 2007. rate. In 1980, the US unemployment rate is about six times the unemployment rate of Taiwan, while in 2007, the gap narrowed to about 0. 8-percentage point. All through out the said period, the unemployment rates of Taiwan are lower than that of the US, except in 2001 where the rates almost equaled. Looking at the US trends during the 28-year period, the peak unemployment rates in 1982, 1992, and 2003 were associated with recessions. The US recession in the early 1980’s was the most severe during the said period. As the US economy started to recover after the first oil shock in 1973, the second oil crisis in 1979 resulted in another recession in early 1980s that moved further up the unemployment rate to 9. 7% in 1982, the highest rate during the 1980-2007 period. As the economy began to grow in 1983, the unemployment rate started to reverse its trend and reached a lower rate of 5. 3% in 1989. The downward unemployment trend could be seen as a product of the free labor markets and the smaller size of welfare packages (Vedder and Gallaway 1), the entry of the oldest members of the baby boom cohorts in mid-1960’s in the labor force at age 16 coupled with their increased labor force participation (Sincavage 36), and substantial contribution of self-employment (Manser and Picot 12-13). The recession in 1991 pinned the unemployment rate at 7. 5% in 1992. But the 1990’s expansion brought about a long-run downward unemployment trend. The unemployment rate dipped at 4% in 2000, the lowest rate over the 28-year period. Katz and Krueger attribute this downward trend to four labor market explanations. The first is the entry of the oldest baby boom cohorts in the labor force at age 16 in the 1990s. The second is the rising proportion of the population in prison during the 1990s. The third is the better matching between workers and jobs resulting from labor market improvements, such as the Worker Profile and Reemployment Services program required in each state and the temporary help service industry. And the fourth is the worker insecurity in demanding wage gains due to the steady decline in union membership. After the 2001 recession, the unemployment rate continued to increase since the economy slowly recovered. The unemployment rate peaked at 6% in 2003, the lowest peak during the 28-year period. Thereafter, the unemployment rates have slowly decreased to 4. 7% in 2007. Taiwan, on the other hand, had different unemployment pattern. It has two distinct peak unemployment rates in 1985, and 2002. Before 1980, Taiwan experienced a very low unemployment rate, owing to its strong labor-intensive manufacturing industries, such as clothing and textile (Wang 26). The two rounds of oil crises in 1970’s had not spared the country’s economic growth. In response, the government broadcasted its twelve major construction projects, which laid the basic infrastructure for the heavy chemical industries and partly averted the negative impact of the oil crises (â€Å"From Poverty†). However, the loss of the international competitiveness of the country’s labor-intensive industries due to rising labor costs in the 1980’s resulted in the exodus of most of these traditional industries to mainland China and Southeast Asia (Wang 27). This pushed up unemployment rate, reaching its first peak at 2. 9% in 1985. Compared with that of US, the impact on the unemployment rate is relatively lesser. After the 1980s and in the first half of the 1990s, Taiwan gradually developed its ICT industries and successfully transformed itself into a major manufacturer of international ICT products (27). This minimized the unemployment problem of the 1980s. However, after 1995, unemployment dramatically increased until it hit its peak at 5. 2% in 2002, the highest during the 28-year period. Wang ascribes this sharp upward trend to three reasons. First, the capital-intensive and high-technology industries pushed most labor-intensive industries to move production to mainland China and Southeast Asia where labor is cheaper. Second, the Southeast Asian overseas workers had continually contributed to the worsening unemployment problem. Third, the slump in worldwide demand for ICT products in early 2000s plunged Taiwan into its first recession in decades. It registered the first ever negative economic growth in 2001, driving unemployment rate at its highest level at 5. 2% in 2002. After 2003, the economy slowly returned to normal. The unemployment rate gradually declined until 3. 9% in 2007, although much higher than in the 1980s and 1990s. This can be partly attributed to the implementation of the government’s Infrastructure Expansion Programme and Programme to Expand Employment of Public Service in 2003 and 2004 (PricewaterhouseCoopers 215). Meanwhile, the East Asian financial crisis in 1997 had a relatively slight impact on Taiwan’s economy since its unemployment rate remained unchanged. The reasons for these included, among others, the excellent economic fundamentals with no foreign debt, and appropriate government countermeasures (â€Å"From Poverty†). Conclusion The US and Taiwan show contrasting unemployment trends. Although their unemployment rates are moving in opposite directions, Taiwan unemployment rates are still much lower than that of the US However, in the medium- to long-term, with the declining rate of the US unemployment, US might attain a lower unemployment rate similar to that of Taiwan, or even much lower. This could be a good subject for further research. The unemployment trends depend on the countries economic stability and ability to adopt appropriate measures in response to structural and exogenous changes. The downward trend of the US employment implies favorable response of the labor market to the measures being adopted. The efficient and effective measure with longer effects is the implementation of a better worker-job matching scheme at the state level. Taiwan, on the other hand, may need to design a scheme to minimize, if not to avoid, labor erosion as it continues to be one of the major global ICT leaders, thereby addressing the social and economic inequality problems. Works Cited â€Å"From Poverty to Prosperity. † Taiwan Government information Office. 1 March 2008 http://www.gio. gov. tw/info/taiwan-story/economy/edown/3-2. htm Katz, Lawrence F. , and Alan B. Krueger. â€Å"New Trend in Unemployment? The High-Pressure US Labor Market of the 1990s. † Brookings Review Fall (1999): 4-8. Manser, Marilyn E. , and Garnett Picot. â€Å"The Role of Self-Employment in US and Canadian Job Growth. † Monthly Labor Review April (1999): 10-25. PricewaterhouseCoopers. â€Å"Taiwan. † From Beijing to Budapest. 4th ed. 2005/2006. Sincavage, Jessica R. â€Å"The Labor Force and Unemployment: Three Generations of Change. † Monthly Labor Review June (2004): 34-41. Vedder, Richard K. , and Lowell E. Gallaway. â€Å"Unemployment and Jobs in International Perspective. † Joint Economic Committee Study April (1999). 1 March 2008 http://www. house. gov/jec/employ/intern. pdf Wang, Wei Ching. â€Å"Information Society and Inequality: Wage Polarization, Unemployment, and Occupation Transition in Taiwan since 1980†. UTIP Working Paper. Texas: Lyndon B. Johnson School of Public Affairs, University of Texas, 2007. World Economic Outlook Database. October 2007. International Monetary Fund. 28 February 2008 http://www. imf. org/external/pubs/ft/weo/2007/02/weodata/index. aspx