Jobs in jeopardy: Explaining the dynamics of Philippine fiscal stimulus and monetary adjustments on unemployment

• Main Author: Azcarraga, Arno Mikhail J.
• Format: text
• Language: English
• Published: Animo Repository 2021
• Subjects: Unemployment > Philippines; Fiscal policy > Philippines; Monetary policy > Philippines; Economics
• Online Access: https://animorepository.dlsu.edu.ph/etdm_econ/3; https://animorepository.dlsu.edu.ph/cgi/viewcontent.cgi?article=1002&context=etdm_econ
• Institution: De La Salle University

With the objective of lowering unemployment rates, the Philippine government should be able explore three economic policies based on conventional wisdom – the implementation of (1) efficient job matching processes, (2) fiscal, and (3) monetary policies. However, literature would suggest that fiscal and monetary shocks would significantly increase unemployment whereas an improvement in job-matching would allow hard-to-fill occupations to find qualified applicants. Thus, this research simulates shocks of matching technology processes, government spending through unemployment benefits and subsidies, and monetary policies on labor market dynamics in the Philippine economy both empirically and theoretically. Building on dynamic stochastic general equilibrium (DSGE) models of previous literatures (McNelis, 2009; Monacelli, 2010; Tan, 2015; and Zhang, 2015), the research employs a New Keynesian DSGE model of labor markets with search frictions that estimates the impact of advanced matching technology, expansionary fiscal and monetary policies on output and unemployment. Calibration is used to match certain elements of the Philippine economy. Results from the calibrated baseline model show that the matching process, expansionary fiscal and monetary shocks all lead to an expansion in output and an increase in vacancies, translating to a decline in the unemployment rate. Overall, the fiscal shock exhibits more persistent effects on both the economy and the labor market compared to the monetary and matching process shocks, although both fiscal and monetary effects on output and unemployment are short-lived. A policy mix would generate the best results as a simultaneous matching, fiscal, and monetary shock would decrease unemployment and increase output the most. The results of the simulations in the calibrated model allow us to develop policies that are effective in carrying out the short-term and long-term objectives of the Philippine authorities.