Unemployment disparities in Asia-Pacific economies: physical capital or human capital

Abstract

We examine whether physical capital and/or human capital accumulation explain(s) unemployment disparities in fifteen Asia-Pacific economies over the years of 1991 to 2019, using the augmented distributed lag (DL) model and the cross-section augmented distributed lag (CS-DL) model. We find significantly positive and negative mean group estimates of human capital and physical capital accumulation on long-run unemployment rate, respectively. These findings are robust to both DL and CS-DL models and to the inclusion of productivity change. However, the effects differ in each country that explains the various dynamics of unemployment rates in the fifteen Asia-Pacific economies.

Keywords:

• Unemployment disparities
• physical capital
• human capital
• long-run unemployment rate
• growth determinants

jel codes:

• E24, J24, J40

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1 Several variables (such as literacy rate, enrolment rate, educational expenditure, education attainment) have been proxied for human capital. Each index, however, has its own limitation.

2 One assumption of the PWT human capital index is that an average year of schooling in one country creates the same increase in productive skills of an individual with the same years of schooling in any other country.

3 The mean group (MG) estimator calculates separate regressions and provides the average of the parameters. Compared with the pooled estimator, the mean group estimator produces consistent estimates and has satisfactory small performance (Pesaran and Smith 1995; Pesaran, Shin, and Smith 1999).

4 Despite the general perception that unemployment and human capital are expected to be negative correlated, previous empirical results have been mixed (Blanchard, Solow, and Wilson 1997; Benigno, Ricci, and Surico 2015; Chen and Semmler 2018).

5 However, the consistent data of educational quality (such as cognitive skills or mean test score) is not available for a number of Asia-Pacific economies in the present study.

6 The higher education expansion among Asia-Pacific countries has triggered a debate on overeducation in Australia, China, and Hong Kong (Ng 2001; Fleming and Kler 2008; Zheng, Zhang, and Zhu 2021).

Additional information

Notes on contributors

Hui-Hsuan Tang

Dr. Hui-Hsuan Tang obtained her PhD in Economics from University of Oregon, U.S.A., and is an Assistant Professor of Economics at National Taipei University. Her research interests include economics of education and labor economics.

De-Chih Liu

Dr. De-Chih Liu is an Associate Professor of Economics at National Taipei University. He received his PhD in Economics at Newcastle University, Australia. His major area of research is in macroeconomics and labor Economics.