Adjustment Costs Of Labor,Monetary Policy And Chinese Economic Fluctuations

Over the past decades, our country has plunged into a odd situation of "high GDP growth, technological advances but low employment". That means the GDP is not highly related to the employment, presenting a weak cyclical or non-cyclical relationship. And the famous "Phillips curve" and Okun’s law have failed in our country. What’s worse, the monetary policy isn’t working well. Employment elasticity has decreased year by year. For a long time, our country formed a odd vision of "high inflation, high unemployment but fail in monetary policy".All these economic facts are in conflict with the traditional macroeconomic theory.In order to explore the causes of these phenomena, the paper constructs a New Keynesian DSGE model which contains the household, the final-good-producing firm, the intermediate-good-producing firm and the monetary authorities. The model introduce several variables such as price adjustment costs, capital adjustment costs and labor adjustment costs and quantitative monetary policy, all of them are in line with the Chinese economic characteristics. The paper makes use of the Calibration method and Dynare software to calibrate each parameter variable, and get the impulse response function of main economical variables under two different kinds of shocks. Finally, we test the rationality of the model.We can make two conclusions from the results obtained:First, the increasing labor adjustment costs will weaken the positive effect of technological progress have on employment growth, which can explain the odd situation of "high GDP growth, technological advances but low employment" our country are plunging into. On the one hand, the enterprises have to spend a lot of training costs to make the original workers to adapt to new technologies; On the other hand, the substitution effect of technological progress outweigh the compensation effect, which means the number of new job creation is much smaller than a traditional job strangled, thus resulted in the sharp drop in employment. Second, the increasing labor adjustment costs will weaken the influence of monetary policy on the real economy, which is why the famous "Phillips curve" and Okun’s law have failed in our country.According to these conclusions, we propose the following four solutions:First, the government should bear part of the labor adjustment costs, such as the technical training for low-skilled workers in order to reduce the training costs of enterprises so that they can hire more workers when they need. Second, our country should vigorously develop the tertiary industry, such as food and beverage, sales, logistics, finance and other industries. On the one hand, the industry can absorb a lot of workers; on the other hand, the industry does not require highly skilled labor, and they pay more attention to the overall quality of the workforce. Third, the government should make use of fiscal policy and monetary policy rationally, try harder to promote a healthier economic growth and stop blindly pursuing high GDP growth while ignoring the high inflation.Fourth, the government should put the two-child policy into effect to encourage young couple raising two children, so as to complement the demographic dividend and to ease the pressure on the future job market.