Unemployment Rate Essay

Introduction

Unemployment is the number of people who are unemployed or the situation of not being able to find a job while Rate is a measurement of the speed at which happens or the number of times happens or exists during a particular period. The unemployment rate is the percentage of the labor that is unemployed.

Unemployment Rate =

The unemployment rate is not necessarily constant but can change over time. This is because different factors can cause unemployment. There are demand factors like businesses not hiring because they sense a limited market for their goods, which is sensitive to inflation and interest rates. And there are also structural factors: people living near where jobs are, skill mismatches, or the wages workers are willing to accept to take a job. Both demand and structural factors contribute to unemployment.

Unemployment is a problem of great concern for policymakers of both developing and developed countries due to its social and economic reflections.

Determinants of unemployment rate in Malaysia

The first and foremost determinant of unemployment rates in Malaysia is Rural-Urban Migration. Internal migration can be divided into 2 categories which are intrastate and interstate. The migration trend not only involves rural areas to urban but also involves migration from between urban, between rural and urban to rural. Migration is the major factor that contributes to the occurrence of the phenomenon of urban surplus labor. They are more likely to increase labor supply growth in urban areas but will there be a shortage of skilled and experienced labor in rural areas? Given the demand side, employment is the most difficult to obtain and expensive cost of living in the area compared to rural employment opportunities.

Secondly, graduates lack soft skill and communication skills. Graduates may not be trained in soft skills during the lecture. Graduates learn about soft skills and communication when they start to go outside in the real world and gain experience from it. Secondly, Bahasa Malaysia is the official language in Malaysia, and almost all subjects in secondary school, primary school, and public universities in Malaysia are not taught in English. This is because English is the second language in Malaysia. This situation will affect local graduates because graduates may find it very hard to communicate in this language when they go out looking for a job or attend an interview in the real world. It is very unfortunate because English is commonly used for communication in business, privately, and even in some government departments in Malaysia nowadays. Furthermore, it is a worldwide phenomenon where working environments require people to be more flexible, where more emphasis is placed on soft factors and generic competencies such as communication skills and personality features rather than solely on traditional human capital variables such as grade point averages and work experience.

Thirdly, the determinant of unemployment rates in Malaysia is output growth in Malaysia. Macroeconomic theory provides us with relatively few models linking the unemployment rate to GDP growth. It was Okun Laws who focused the discussion on the empirical relationship between the unemployment rate and GDP variations. The explanation of Okun’s law is very simple; due to changes in aggregate demand, firms alter their output plans and this leads to changes in labour demand and therefore affects the unemployment rates. Two methods have been used to estimate the Okun coefficient, the output-gap method, and the second alternative uses the GDP growth and a first difference measure of unemployment. Two-way causality between the unemployment rate and output growth in Malaysia. A reduction in the unemployment rate will cause the economy to expand. At the same time, any increase in economic activities will cause employment to increase, and thus unemployment to decrease. These findings have significant implications for development programs and policies introduced by the government. The results also confirmed that there is a negative relationship between unemployment and output growth. The Okun Coefficient is -1.75, and it is significant at a 1 percent level. This suggests that a one percent decline in unemployment will increase output by 1.75 percent. This is much less than the coefficient found in Okun’s original work (3 percent). This finding provides support for the argument that the slope coefficient in Okun’s model is unstable and tends to vary across countries and periods. This determinant is also supported by the determinant of unemployment rates in Bangladesh. This journal article said that Economic growth is a vital factor that affects unemployment. Theoretically, a positive relation should exist among growth and employment or a negative with unemployment. The economic theory, which converses on the subject of the relationship between unemployment and economic growth is named Okun’s law. He studied the trade-off between the real GNP and unemployment. According to the theory, there is an inverse relation between growth and unemployment. The relationship between unemployment and inflation is termed as Philips curve in economic theory and was developed in 1958 by A. W. H. Philip. He discovered a positive relationship between the two variables. Individually, inflation and unemployment both have negative effects on individuals. With globalization and open trade, the exchange rate has started playing a vital role in the economy which has a direct effect on the unemployment level in a country. With devaluation, exports tend to boost, and as a result expenditure on imports is reduced. By this, the inflow of foreign currency is enhanced economies move towards growth, and consequently the rate of unemployment declines.

Lastly, the determinant of unemployment rates in Malaysia is because of job mismatches. Job mismatch is a famous topic relating to unemployment among graduates. Job mismatch can also be known as qualification mismatch where it occurs if the level of formal education a worker possesses deviates from the one required for the job, skill mismatch occurs if the worker possesses a higher or lower level of skills than required to perform the job. The type of job mismatch can be divided into 3 categories. Firstly, there is a job mismatch compared to graduates' education level. Secondly, job mismatch compares to the graduate's qualification. Lastly, job mismatch as compared to the graduate's field of study. Job mismatch in education is based on how to distinguish the education of the workers with the required education by his or her current job. The mismatch in qualification is determined based on the different levels of qualification possessed by the worker in comparison to the required level of qualification for their job description. Finally, the field of study and job mismatch can be determined by the individual's field of study in relation or not to their job contents.

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The determinant of unemployment rates is different at the international level such as Qatar. This is because the determinant of the unemployment rate in Qatar is education and youth waiting for a job in the public sector. The higher level, level of education, the lower the unemployment rate. For women, for those who have the lowest education (primary school), the unemployment rate is higher than for those who have a higher education such as University. Women with only primary schooling have a 23% unemployment rate, those with a preparatory have a 14% unemployment rate while those with a university have an unemployment rate under 1%. For males, those who have a secondary level have a higher unemployment rate than those at the preparatory level, but the highest unemployment rate is at the primary level (2.5%) and the lowest is at university or above (0.3%). Secondly, a determinant of youth unemployment rates in Qatar is the youth waiting for a job in the public sector. In the 2008 labor force survey half of all unemployed Qataris responded that they were not willing to work in the private sector. For women, 64% are not willing to work in the private sector while 36 are willing to work. For men, 65% are willing to work in the private sector but 35% are not willing to work in the private sector.

Secondly, the determinants of the unemployment rate in Palestine are because of Israeli occupation policies which disrupted the Palestinian economy, and Palestine restricted the movement of Palestinian labor to Israel. This is because economic growth is the major factor that affects the unemployment rate. Commonly believed that the connection between the unemployment rate and economic growth is explained by Okun’s Law. Theory says that the higher the rate of economic growth the more the unemployment rate is reduced. The inflation rate also can be an important factor that affects the unemployment rate. Philips curve explains the relationship between the unemployment rate and inflation. There is a negative relationship between inflation and unemployment in the long run, where inflation causes falling in employment in Palestine. While, in the short run it is stated that the inflation rate affects the unemployment rate positively in Palestine, so the Philips relation is not applicable in the Palestinian case. The determinant of the unemployment rate in Palestine has restricted the movement of Palestinian labor to Israel. The challenges of unemployment in Palestine for the period 2000-2015, by using trend analysis on a data set for both the areas of the West Bank and the Gaza Strip individually. The study mainly concluded an upward trend in unemployment in the Gaza Strip compared with that of the West Bank. Also, it is denoted that the constraint imposed by the Israeli occupation in the West Bank and Gaza Strip during the second Intifada (Alaqsa) since 2000 years onwards and the siege on the Gaza Strip from 2007 years onward are the main factors that increased the unemployment rate in the Gaza Strip and Palestine as a whole.

Determinants of unemployment rates in Jordan because of private investment. An increase in private investments leads to stimulating economic activities by increasing already existing productive assets in the national economy, expanding existing productive projects or replacing projects whose economic lifetime ended, and buying securities issued to establish new projects that lead to creating new job opportunities and decrease unemployment rates, especially in labor-intensive projects. It is worth mentioning that a replacement of projects whose economic lifetime ended may not lead to create new jobs, whereas opening up new job opportunities may refer to a project that will be created or projects that have either backward or forward links to the original project. Population growth is also considered one of the main influencing factors on unemployment rates; that is, population growth increases the supply of labor, and the unemployment rate consequently rises. There is an effect of inflation on unemployment rates. By using his curve – known as the “Phillips Curve” – Phillips shows that there is a negative relationship between unemployment and inflation. That relationship could be simultaneously considered positive by others; namely, a rise in price levels (inflation) may reduce the supply of labor, through the mechanism of replacement labor for leisure time, as a result of a decrease in real wages which in turn increases unemployment rates.

Conclusion

The main objective of this assignment is to interpret macroeconomics theory and important issues in macroeconomics and discuss open economy concepts and real economy. In this assignment, I chose one macroeconomic issue which is determinants of unemployment rates and I find the data and information from various types of journal articles, 4 at the national level and 4 at the international level.

Unemployment rates in Malaysia are affected by many factors such as rural-urban migration. the problem of unemployment in urban areas is becoming increasingly serious due to the economic and structural imbalances between rural and urban areas. Secondly, graduates lack soft skills and communication skills. Graduates may not be trained in soft skills during the lecture or in class and graduates lack communication skills such as speaking in English because the education system in Malaysia mostly uses Bahasa Malaysia teaching in class. Thirdly, the determinant of unemployment rates in Malaysia is output growth in Malaysia. This determinant is also supported by the determinant of unemployment rates in Bangladesh. This journal article said that economic growth is a vital factor that affects unemployment. Theoretically, a positive relation should exist between growth and employment or a negative with unemployment. The determinant of unemployment rates in Malaysia is because of job mismatches. The jobs that firms or private sector provide to graduate are not suitable for their field of study and this causes unemployment rates in Malaysia.

On the other hand, the determinants of the unemployment rate in Qatar are divided into two types that are education and the youth waiting for jobs in the public sector. These two factors are the main causes of the unemployment rate in Qatar. This determinant is different from Malaysia's determinant. This determinant said that the higher the level of education, the lower the unemployment rate. Secondly. the youth waiting for a job in the public sector. Majority of the Qataris are not willing to work in the private sector and this causes unemployment in Qatar but Qatar country is among the countries with the lowest unemployment rates. The determinant of unemployment rates in Palestine is Israeli occupation policies which disrupted the Palestinian economy. This makes economic growth in Palestine slow and increases unemployment rates. Secondly, restricted the movement of Palestinian labor to Israel. This reason makes Palestine among the highest unemployment rate country in the world. The determinant of the unemployment rate in Jordan is private investment. An increase in private investment will decrease the unemployment rates in Jordan. While the decrease in private investment will increase the unemployment rate. So, it can be said that the relationship between private investment and the unemployment rate in Jordan is negative.

In conclusion, from my research, I found some of the determinants of the unemployment rate in Malaysia are the same with international determinants such as in Bangladesh. But determinants of unemployment rates in Malaysia are different from Palestine, Jordan, and Qatar.