Page 15 - AEI Insights 2019 - Vol. 5, Issue 1

Furuoka et al, 2019

In a study by Furuoka (2017a), it was found that labour market dynamics in Asia can be
classified into two basic patterns. The first pattern highlights countries which have
unemployment rates with a weak reversion tendency in some Asian countries, such as Japan
and Singapore, whereas the second shows those that have unemployment rates with a strong
reversion tendency in other Asian countries, such as South Korea and the Philippines. These
patterns suggest that some Asian countries face the issue of unemployment hysteresis while
others do not.

As demonstrated in Figure 3, the first category is represented by Japan and Singapore.
Unemployment rates in these countries tend to increase during economic crisis but do not revert
to normal levels or mean values after the Asian financial crisis in the end of 1990s. For
example, like other Asian countries, Japan and Singapore went through the Asian Economic
Crisis in the late 1990s. Thus there was a noticeable upward climb in their unemployment rates
in the early 2000s. However, when the economy recovered in the late 2000s, unemployment
rates in these countries did not immediately decrease to pre-crisis levels. A plausible
explanation for this is the effect of aging population on unemployment rate (Serban, 2012).
Since Japan and Singapore are two of Asia’s fastest aging societies, unemployment among the
older generation is an issue they have been struggling with for the past few decades. Thus
unemployment hysteresis is more likely to happen in these countries than others in the region.
In other words, some Asian countries also experiences unemployment hysteresis, but at a lower
extend as compared to European countries.

By contrast, South Korea and the Philippines seem to belong to the second group of countries
which have less problem with unemployment hysteresis. These countries are typical Asian
economies have not hysteresis in their unemployment rate. In other words, their unemployment
rates have a stronger mean reversion tendency. South Korea’s unemployment rate increased
during the Asian Economic Crisis in the late 1990s, but almost immediately reverted to a lower
level after the crisis ended. In the case of the Philippines, its unemployment rates are relatively
higher. Despite this apparent volatility, the country’s unemployment rates have strong mean
reversion tendency and reverted to a much lower level as soon as the economy recovered in the
mid-2000s. Again this can be explained by the aging population theory (Serban, 2012). Since
the aging population issue is not as severe in these two countries as it is in Japan and Singapore,
they are likely able to overcome unemployment hysteresis more easily.

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