The Sources of Taiwan`s Regional Unemployment: A Cross-region Panel Analysis

Abstract

In recent years under the trendof a global recession anddomestic structural change, the unemployment rate in Taiwan has reacheda recordhigh of above 5% which in turn has generateda series of social problems. Unemployment has now become the core issue in the government`s agenda. From historical regional data, we findthat there are distinct variations of the unemployment rate among 23 cities andprefectures; moreover, this differentiation seems to persist over time. We analyze this regional unemployment trendby equilibrium and disequilibrium factors controlling for the macro environment using 23 cities and prefectures cross section and time series data pertaining to the 1995 to 2004 period. A cross-region panel study shows that the major factors that explain the persistent but divergent regional unemployment rates (aside from the aggregate macro environment which explains about one quarter) are demographic composition, family characteristics, industrial structure, population density, migration costs, and labor mobility. Understanding the sources of regional unemployment will help us to determine the appropriate policies to mitigate the unemployment rate across regions.