UNEMPLOYMENT BEHAVIOUR IN THE COVID-19 PANDEMIC: EVIDENCE FROM DEVELOPING COUNTRIES

Authors

  • Chor Foon Tang Universiti Sains Malaysia
  • Salah Abosedra American University in the Emirates

DOI:

https://doi.org/10.33736/ijbs.5610.2023

Keywords:

COVID-19, corruption, developing countries, GMM, unemployment rate

Abstract

This paper explores the impacts of the COVID-19 pandemic, corruption and other determinants on unemployment in developing countries using panel dataset for 89 developing countries from January to December 2020. The proposed unemployment model is estimated utilising a newly formulated conceptual framework to examine whether COVID-19 pandemic, corruption, and human capital, play a moderating role on unemployment determination in our selected developing countries. The model is estimated using the dynamic panel system generalised method of moments (GMM) estimator. Apart from output, inflation and human capital, our results show that the COVID-19 pandemic and corruption are major variables in explaining the unemployment rate for our sampled countries. Furthermore, and more notably, we find evidence that the COVID-19 pandemic and corruption appear to significantly restrain and alter the role of outputs and human capital in impacting unemployment. Therefore, the detrimental effects of the COVID-19 pandemic and corruption on the economies and labour markets of countries examined should not be under-estimated. Additionally, findings show that, while policy initiatives to combat the COVID-19 pandemic are critical, strengthening anti-corruption regulations would further improve the efficiency of any attempt to reduce unemployment rates associated with the COVID-19 period.

References

Adams-Prassl, A., Boneva, T., Golin, M., & Rauh, C. (2020). Inequality in the impact of the coronavirus shock: Evidence from real time survey. Journal of Public Economics, 189, 104245.

https://doi.org/10.1016/j.jpubeco.2020.104245

Aidt, T. S., Dutta, J., & Sena, V. (2008). Governance regimes, corruption and growth: Theory and evidence. Journal of Comparative Economics, 36(2), 195-220.

https://doi.org/10.1016/j.jce.2007.11.004

Alavinia, S. M., & Burdorf, A. (2008). Unemployment and retirement and ill-health: A cross-sectional analysis across European countries. International Archives of Occupational and Environmental Health, 82, 39-45.

https://doi.org/10.1007/s00420-008-0304-6

Ali, S., Yusop, Z., Kaliappan, S. R., Lee, C., & Meo, M. S. (2022). Impact of trade openness, human capital, public expenditure and institutional performance on unemployment: Evidence from OIC countries. International Journal of Manpower, 43(5), 1108-1125.

https://doi.org/10.1108/IJM-10-2020-0488

Arellano, M., & Bond, S. (1991). Some tests of specification for panel data: Monte Carlo evidence and application to employment equations. Review of Economic Studies, 58(2), 277-297.

https://doi.org/10.2307/2297968

Attfield, C. L., & Silverstone, B. (1998). Okun's law, cointegration and gap variables. Journal of Macroeconomics, 20(3), 625-637.

https://doi.org/10.1016/S0164-0704(98)00076-7

Baker, S. R., Farrokhnia, R. A., Meyer, S., Pagel, M., & Yannelis, C. (2020). How does household spending respond to an epidemic? Consumption during the 2020 COVID-19 pandemic. Review of Asset Pricing Studies, 10(4), 834-862.

https://doi.org/10.1093/rapstu/raaa009

Ball, L., Furceri, D., Leigh, D., & Loungani, P. (2019). Does one law fit all? Cross-country evidence on Okun's law. Open Economies Review, 30(5), 841-874.

https://doi.org/10.1007/s11079-019-09549-3

Ball, L. M., Leigh, D., & Loungani, P. (2017). Okun's Law: Fit at 50? Journal of Money, Credit and Banking, 49(7), 1413-1441.

https://doi.org/10.1111/jmcb.12420

Bardsen, G. (1989). Estimation of long-run coefficients in error correction models. Oxford Bulletin of Economics and Statistics, 51(2), 345-350.

https://doi.org/10.1111/j.1468-0084.1989.mp51003008.x

Barham, C., Walling, A., Clancy, G., Hicks, S., & Conn, S. (2009). Young people and the labour market. Economic and Labour Market Review, 3, 17-29.

https://doi.org/10.1057/elmr.2009.56

Béland, L. P., Brodeur, A., & Wright, T. (2020). The short-term economic consequences of COVID-19: Exposure to disease, remote work and government response. IZA Discussion Paper No. 13159.

https://doi.org/10.2139/ssrn.3584922

Bloom, N., Bunn, P., Mizen, P., Smietanka, P., & Thwaites, G. (2020). The impact of COVID-19 on productivity. NBER Working Paper 28233.

https://doi.org/10.3386/w28233

Blundell, R., & Bond, S. (1998). Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics, 87(1), 115-143.

https://doi.org/10.1016/S0304-4076(98)00009-8

Blundell, R., & Bond, S. (2000). GMM estimation with persistent panel data: An application to production function. Econometric Reviews, 19(3), 321-340.

https://doi.org/10.1080/07474930008800475

Bond, S. (2002). Dynamic panel data models: A guide to micro data methods and practice. Portuguese Economic Journal, 1, 141-162.

https://doi.org/10.1007/s10258-002-0009-9

Bouzid, B. N. (2016). Dynamic relationship between corruption and youth unemployment: Empirical evidences from a system GMM approach. Policy Research Working Paper No. 7842, World Bank.

https://doi.org/10.1596/1813-9450-7842

Bruno, G. S. F., Tanveer, M. C., Marelli, E., & Signorelli, M. (2017). The short- and long-run impacts of financial crises on youth unemployment in OECD countries. Applied Economics, 49(34), 3372-3394.

https://doi.org/10.1080/00036846.2016.1259753

Burger, P., & Marinkov, M. (2006). The South African Phillips curve: How applicable is the Gordon model. South African Journal of Economics, 74(2), 172-189.

https://doi.org/10.1111/j.1813-6982.2006.00062.x

Canarella, G., & Miller, S. M. (2017). Did Okun's law die after the great recession? Business Economics, 52(4), 216-226.

https://doi.org/10.1057/s11369-017-0045-1

Card, D. (2001). Estimating the return to schooling: Progress on some persistent econometric problems. Econometrica, 69(5), 1127-1160.

https://doi.org/10.1111/1468-0262.00237

Carlsson-Szlezak, P., Reeves, M., & Swartz, P. (2020a). Understanding the economic shock of coronavirus. Harvard Business Review. https://hbr.org/2020/03/understanding-the-economic-shock-of-coronavirus

Carlsson-Szlezak, P., Reeves, M., & Swartz, P. (2020b). What coronavirus could mean for the global economy. Harvard Business Review. https://hbr.org/2020/03/what-coronavirus-could-mean-for-the-global-economy?autocomplete=true

Christopoulos, D. K. (2004). The relationship between output and unemployment: Evidence from Greek regions. Papers in Regional Science, 83(3), 611-620.

https://doi.org/10.1111/j.1435-5597.2004.tb01928.x

Cuaresma, J. C. (2003). Okun's law revisited. Oxford Bulletin of Economics and Statistics, 65(4), 439-451.

https://doi.org/10.1111/1468-0084.t01-1-00056

d'Agostino, G., Dunne, J. P., & Pieroni, L. (2016). Government spending, corruption and economic growth. World Development, 84, 190-205.

https://doi.org/10.1016/j.worlddev.2016.03.011

Dachito, A. C., Alemu, M., & Alemu, B. (2020). The impact of public education expenditures on graduate unemployment: Cointegration analysis to Ethiopia. Journal of International Trade, Logistics and Law, 6(2), 62-78.

Dingel, J. I., & Neiman, B. (2020). How many jobs can be done at home?. Journal of Public Economics, 189, 104235.

https://doi.org/10.1016/j.jpubeco.2020.104235

Farber, H. S. (2004). Job loss in the United States, 1981 to 2001. In: Polachek, S.W. (ed.) Accounting for Worker Well-Being (Research in Labour Economics, vol. 23). Emerald Group Publishing, Bingley, pp. 69-117.

https://doi.org/10.1016/S0147-9121(04)23003-5

Fedderke, J. W., & Schaling, E. (2005). Modelling inflation in South Africa: A multivariate cointegration analysis. South African Journal of Economics, 73(1), 79-92.

https://doi.org/10.1111/j.1813-6982.2005.00006.x

Forsythe, E., Kahn, L. B., Lange, F., & Wiczer, D. (2020). Labor demand in the time of COVID-19: Evidence from vacancy postings and UI claims. Journal of Public Economics, 189, 104238.

https://doi.org/10.1016/j.jpubeco.2020.104238

Friedman, M. (1968). The role of monetary policy. American Economic Review, 58(1), 1-17.

Furuoka, K. (2007). Does the "Phillips curve" really exist? New empirical evidence from Malaysia. Economics Bulletin, 5(16), 1-14.

Gabrisch, H., & Buscher, H. (2006). The relationship between unemployment and output in post-communist countries. Post-Communist Economies, 18(3), 261-276.

https://doi.org/10.1080/14631370600881804

Gil-Alana, L. A., Skare, M., & Buric, S. B. (2020). Testing Okun's law. Theoretical and empirical considerations using fractional integration. Applied Economics, 52(5), 459-474.

https://doi.org/10.1080/00036846.2019.1646407

Grossman, M. (2006). Chapter 10 Education and nonmarket outcomes. In: E. Hanushek and F. Welch (eds.) Handbook of the Economics of Education, Amsterdam: Elsevier.

https://doi.org/10.1016/S1574-0692(06)01010-5

Hamada, K., & Kurosaka, Y. (1984). The relationship between production and unemployment in Japan: Okun's law in comparative perspective. European Economic Review, 25(1), 71-94.

https://doi.org/10.1016/0014-2921(84)90073-4

Hansen, L. P. (1982). Large sample properties of generalized method of moments estimators. Econometrica, 50(4), 1029-1054.

https://doi.org/10.2307/1912775

Hodge, A., Shankar, S., Rao, P., & Duhs, A. (2011). Exploring the links between corruption and growth. Review of Development Economics, 15(3), 474-490.

https://doi.org/10.1111/j.1467-9361.2011.00621.x

Holden, K., & Peel, D. A. (1975). The determinants of unemployment and the 'UV' relationship. Applied Economics, 7(4), 251-255.

https://doi.org/10.1080/00036847500000026

Holden, K., & Peel, D. A. (1979). The determinants of the unemployment rate: Some empirical evidence. Journal of the Royal Statistical Society: Series D (The Statistician), 28(2), 101-107.

https://doi.org/10.2307/2987683

Huang, C. J. (2016). Is corruption bad for economic growth? Evidence from Asia-Pacific countries. North American Journal of Economics and Finance, 35, 247-256.

https://doi.org/10.1016/j.najef.2015.10.013

Huang, H., & Chang, Y. (2005). Investigating Okun's law by the structural break with threshold approach: Evidence from Canada. Manchester School, 73(5), 599-611.

https://doi.org/10.1111/j.1467-9957.2005.00466.x

Huang, H. C., & Yeh, C. C. (2013). Okun's law in panels of countries and states. Applied Economics, 45(2), 191-199.

https://doi.org/10.1080/00036846.2011.597725

International Labour Organisation [ILO] (2021). World Employment Social Outlook - Trends 2021. International Labour Office, Geneva: ILO.

International Monetary Funds [IMF] (2010). Unemployment dynamics during recessions and recoveries: Okun's law and beyond. In: World Economic Outlook: Rebalancing Growth, Washington DC: International Monetary Funds.

https://doi.org/10.5089/9781589069565.081

Lackó, M. (2004). Tax rates and corruption: Labour-market and fiscal effects. Empirical cross-country comparisons on OECD and transition countries. WIIW Research Report No. 309.

Lewis, D., Mertens, K., & Stock, J. H. (2020). U.S. economic activity during the early weeks of the SARS-Cov-2 outbreak. NBER Working Paper No. 26954.

https://doi.org/10.3386/w26954

Lim, K. Y. (2018). Modelling the dynamics of corruption and unemployment with heterogeneous labour. Economic Modelling, 79, 98-117.

https://doi.org/10.1016/j.econmod.2018.10.004

Ludvigson, S. C., Ma, S., & Ng, S. (2020). COVID-19 and the macroeconomic effects of costly disasters. NBER Working Paper No. 26987.

https://doi.org/10.3386/w26987

Lucas, R. E. (1973). Some international evidence on output-inflation tradeoffs. American Economic Review, 63(3), 326-334.

Maqbool, M. S., Mahmood, T., Sattar, A., & Bhalli, M. N. (2013). Determinants of unemployment: Empirical evidence from Pakistan. Pakistan Economic and Social Review, 51(2), 191-207.

Marinkov, M., & Geldenhuys, J. (2007). Cyclical unemployment and cyclical output: An estimation of Okun's coefficient for South Africa. South African Journal of Economics, 75(3), 373-390.

https://doi.org/10.1111/j.1813-6982.2007.00134.x

Matuzeviciute, K., Butkus, M., & Karaliute, A. (2017). Do technology innovations affect unemployment? Some empirical evidence from European countries. Economies, 5(48), 1-19.

https://doi.org/10.3390/economies5040048

Méon, P. G., & Sekkat, K. (2005). Does corruption grease or sand the wheels of growth?. Public Choice, 122(1-2), 69-97.

https://doi.org/10.1007/s11127-005-3988-0

Mo, P. A. (2001). Corruption and economic growth. Journal of Comparative Economics, 29(1), 66-79.

https://doi.org/10.1006/jcec.2000.1703

Moosa, I. A. (1997). A cross-country comparison of Okun's coefficient. Journal of Comparative Economics, 24(3), 335-356.

https://doi.org/10.1006/jcec.1997.1433

Neely, C. J. (2010). Okun's law: Output and unemployment. Economic Synopses, 4, 1-2.

https://doi.org/10.20955/es.2010.4

Okun, A. M. (1962). Potential GNP: Its measurement and significance. American Statistical Association: Proceedings of the Business and Economic Statistics Section, 98-104.

Oreopoulos, P., & Salvanes, K. G. (2009). Priceless: The nonpecuniary benefits of schooling. Journal of Economic Perspectives, 25(1), 159-184.

https://doi.org/10.1257/jep.25.1.159

Owyang, M. T., & Vermann, E. K. (2013). Okun's law in recession and recovery. Economic Synopses, 23, 1-2.

https://doi.org/10.20955/es.2013.23

Perman, R., Stephan, G., & Tavéra, C. (2015). Okun's Law - A Meta-analysis. Manchester School, 83(1), 101-126.

https://doi.org/10.1111/manc.12057

Phelps, E. S. (1967). Phillips curves, expectations of inflation and optimal unemployment over time. Economica, 34(135), 254-281.

https://doi.org/10.2307/2552025

Phillips, A. W. (1958). The relationship between unemployment and the rate of change of money wages in the United Kingdom, 1861-1957. Economica, 25(100), 283-299.

https://doi.org/10.1111/j.1468-0335.1958.tb00003.x

Phiri, A. (2015). Examining asymmetric effects in the South African Phillips curve: Evidence from logistic smooth transition regression models. International Journal of Sustainable Economy, 8(1), 18-42.

https://doi.org/10.1504/IJSE.2016.073683

Pizzo, A. (2020). Literature review of empirical studies on Okun's law in Latin America and the Caribbean. ILO Employment Working Papers No. 252.

Potrafke, N. (2019). Electoral cycles in perceived corruption: International empirical evidence. Journal of Comparative Economics, 47(1), 215-224.

https://doi.org/10.1016/j.jce.2018.11.003

Riddell, W. C., & Song, X. (2011). The impact of education on unemployment incidence and re-employment success: Evidence from the US labour market. IZA Discussion Papers No. 5572.

https://doi.org/10.2139/ssrn.1790683

Roodman, D. (2009). A note on the theme of too many instruments. Oxford Bulletin of Economics and Statistics, 71(1), 138-158.

https://doi.org/10.1111/j.1468-0084.2008.00542.x

Samuelson, P. A., & Solow, R. M. (1960). Analytical aspects of anti-inflation policy. American Economic Review, 50(2), 177-194.

Saunders, P. (2002). The direct and indirect effects of unemployment on poverty and inequality. Australian Journal of Labour Economics, 5(4), 507-530.

Schuring, M., Robroek, S. J., Otten, F. W., Arts, C. H., & Burdorf, A. (2013). The effect of ill health and socioeconomic status on labor force exit and re-employment: A prospective study with ten years follow-up in the Netherlands. Scandinavian Journal of Work, Environment and Health, 39(2), 134-143.

https://doi.org/10.5271/sjweh.3321

Siegrist, J., Wahrendorf, M., von dem Knesebeck, O., Jurges, H., & Borsch-Supan, A. (2007). Quality of work, well-being, and intended early retirement of older employees: Baseline results from the SHARE study. European Journal of Public Health, 17(1), 62-68.

https://doi.org/10.1093/eurpub/ckl084

Silvapulle, P., Moosa, L. A., & Silvapulle, M. J. (2004). Asymmetry in Okun's law. Canadian Journal of Economics, 37(2), 353-374.

https://doi.org/10.1111/j.0008-4085.2004.00006.x

Tang, C. F. (2010). The effects of macroeconomic evils on property and violent crimes in Malaysia. International Journal of Business and Society, 11(2), 35-50.

Tang, C. F. (2018). The impact of governance and institutions on inbound tourism demand: Evidence from a dynamic panel data study. Asia Pacific Journal of Tourism Research, 23(10), 1000-1007.

https://doi.org/10.1080/10941665.2018.1513052

Tang, C. F., & Tan, E. C. (2018). Tourism-led growth hypothesis: A new global evidence. Cornell Hospitality Quarterly, 59(3), 304-311.

https://doi.org/10.1177/1938965517735743

Thielen, K., Nygaard, E., Andersen, I., & Diderichsen, F. (2013). Employment consequences of depressive symptoms and work demands individually and combined. European Journal of Public Health, 24(1), 34-39.

https://doi.org/10.1093/eurpub/ckt011

Touny, A. M. (2013). Investigate the long-run trade-off between inflation and unemployment in Egypt. International Journal of Economics and Finance, 5(7), 115-125.

https://doi.org/10.5539/ijef.v5n7p115

Tsanana, E., Chapsa, X., & Katrakilidis, C. (2016). Is growth corrupted and or bureaucratic? Panel evidence from the enlarged EU. Applied Economics, 48(33), 3131-3147.

https://doi.org/10.1080/00036846.2015.1136395

van Zon, S. K. R., Reijneveld, S. A., de Leon, C. F. M., & Bültmann, U. (2017). The impact of low education and poor health on unemployment varies by work life stage. International Journal of Public Health, 62(9), 997-1006.

https://doi.org/10.1007/s00038-017-0972-7

Windmeijer, F. (2005). A finite sample correction for the variance of linear efficient two-step GMM estimators. Journal of Econometrics, 126(1), 25-51.

https://doi.org/10.1016/j.jeconom.2004.02.005

Wooldridge, J. M. (2002). Introductory Econometrics: A Modern Approach (2nd edition). Thomson/South-Western.

Yasenov, V. I. (2020). Who Can Work from Home?. IZA Discussion Paper No. 13197.

https://doi.org/10.2139/ssrn.3590895

Downloads

Published

2023-04-07

How to Cite

Chor Foon Tang, & Salah Abosedra. (2023). UNEMPLOYMENT BEHAVIOUR IN THE COVID-19 PANDEMIC: EVIDENCE FROM DEVELOPING COUNTRIES. International Journal of Business and Society, 24(1), 164–183. https://doi.org/10.33736/ijbs.5610.2023