Econometric modelling of the labour market in Singapore.

Abstract

This paper models unemployment and inflation in Singapore using an imperfect competition approach. We estimate a NAIRU (Non-Accelerating Inflation Rate of Unemployment) model and then attempt to derive estimates of the NAIRU. We find that real wages and past employment are important influencing current employment. Our empirical results also show that some of the wage push variables are important in influencing real wages. Notably, skills mismatch and productivity have significant effects. Price mark-up over wages is determined by price expectations and demand side variables. We also test the proposition that the NAIRU is indeed consistent with constant inflation through a series of long-run simulations. A test for the possibility of hysteresis effects indicates the lack of evidence for hysteresis.