Title: Bayesian analysis of unemployment dynamics in Japan

Authors: Koki Kyo; Hideo Noda; Genshiro Kitagawa

Addresses: Obihiro University of Agriculture and Veterinary Medicine, Inada-cho, Obihiro, Hokkaido 080-8555, Japan ' Faculty of Literature and Social Sciences, Yamagata University, 1-4-12 Kojirakawa-machi, Yamagata 990-8560, Japan ' Research Organization of Information and Systems, 4-3-13 Toranomon, Minato-ku, Tokyo 105-0001, Japan

Abstract: In this paper, we investigate the unemployment dynamics in Japan within the framework of Bayesian modelling. To consider structural changes in a model for the matching function specified in Cobb-Douglas form, we regard not only the matching efficiency but also the elasticities of new hiring with respect to unemployment and with respect to vacancies as time-varying parameters. Then, from a Bayesian perspective, these are treated as random variables and smoothness priors are introduced. In addition, a set of models for the matching function and the smoothness priors is described in a state space representation. The parameter estimation is carried out using Kalman filter and fixed-interval smoothing. The average for the period between January 2009 and December 2010 suggests that 60% of the total unemployment rate was a result of structural and frictional factors and that 40% was attributable to a labour demand deficiency. Further, in terms of matching efficiency, the Japanese labour market is not viewed as functioning effectively even in the late 2000s.

Keywords: unemployment dynamics; Japanese labour market; matching function; matching efficiency; Bayesian analysis; Japan; Kalman filter; modelling; structural changes; parameter estimation; fixed-interval smoothing.

DOI: 10.1504/AJMSA.2013.056005

Asian Journal of Management Science and Applications, 2013 Vol.1 No.1, pp.4 - 25

Received: 30 Jul 2012
Accepted: 26 Oct 2012
Published online: 18 Jul 2014 *

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