Robustness of the Job – Finding, Job Loss (JFJL) Model in Modeling the Employment and Unemployment Rates of Ghana

Abstract

The issues of employment and unemployment have become major macroeconomic factors that determine growth patterns of the modern Ghanaian economy. Periods of economic boom or growth of output can be associated with high rates of employment while recession periods correlate positively with woeful rates of unemployment. This undoubtedly suggests an inverse association between high rates of employment and recession; and high rates of unemployment and economic boom. This paper evaluates the robustness of the Job – Finding, Job Loss (JFJL) model in modeling the employment and unemployment rates in Ghana. It uses the job – finding and separation parameters as bases to model the employment and unemployment rates of Ghana in the form of simple Non – Homogenous First Order Ordinary Differential Equations. The resulting model is obtained by solving the differential equations via the Method of Variation of Constants (MVC). The JFJL model suggests an environment in which labour force is allowed to vary with time. It assumes a stable state equilibrium condition of the labour market which assisted in obtaining the same expressions as those for the natural rates of employment and unemployment. The predictive ability of the models is ascertained with real data obtained from the Ministry of Labour and Employment, which served as the inputs of simple input/output functions written in Microsoft Excel. The data cover labour force, employment, employment rates, unemployment and unemployment rates from the year 2000 through to 2014. The results evince the closeness of the predicted values or rates to the actual values or rates of employment and unemployment. In fact, at certain points in time especially getting to the end of the period (2013, 2014 and 2015), the model predicted approximately the same values and rates as the actual values and rates of employment and unemployment. Thus, the robustness of the JFJL model in predicting the employment and unemployment rates in the Ghanaian economy is established.

Keywords: Employment and unemployment rates, Job – Loss, Job Finding model, Non –        homogeneous first order ordinary differential equations, Method of variation of constants, Ministry of Labour and Employment and Stable state equilibrium of the labour market