Revisiting Okun's Law: Evidence from Malaysia
Keywords:
Okun's Law, unemployment, gross domestic products, inflation, population, FDI
Abstract
Okun’s Law explains an inverse relationship between unemployment and GDP. To re-examine the validity of Okun’s Law to the Malaysian economy through the period of 1988 until 2021, this paper employed the Ordinary Least Squares (OLS) approach with several diagnostic tests. The findings indicate that there is a significant relationship between GDP and unemployment. The control variables - population, inflation rate, and FDI also significantly affect unemployment. While the country's GDP and inflation rate have a negative relationship with unemployment, population and FDI have a positive relationship with unemployment in Malaysia. Therefore, Okun’s Law is valid in the case of Malaysia.
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References
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Bal-Doma?ska, B. (2022). The impact of macroeconomic and structural factors on the unemployment of young women and men. Economic Change and Restructuring, 55(2), 1141-1172.
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Dvouletý, O., Lukeš, M., & Vancea, M. (2020). Individual-level and family background determinants of young adults’ unemployment in Europe. Empirica, 47(2), 389-409.
Dunsch Sophie (2016), Okun’s Law and Youth Unemployment in Germany and Poland. International Journal of Management and Economics, 34–57.
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Md Kamrul, I. (2021), Relationship between Economic Growth and Unemployment; Measuring Okun?s Coefficient for Bangladesh. International Journal of Research and Innovation in Social Science (IJRISS), 5(8), 628-635.
Michael, E., & Geetha, C. (2020). Macroeconomic factors that affect youth unemployment in Malaysia. Malaysian Journal of Business and Economics (MJBE), 7(2), 181-181.
Mohd Azhar, A. A. and Ibrahim, N. A. (2021), Factors Affecting Unemployment Rate in Malaysia. E-Prosiding Seminar Antarabangsa Islam dan Sains, 670 – 679.
Muhd Irpan, H., Mat Saad, R., Md Nor, A. H. S., Md Noor, A. H., and Ibrahim, N. (2016), Impact of Foreign Direct Investment on The Unemployment Rate In Malaysia. Journal of Physics: Conference Series 710.
Mukoyama, T., & ?ahin, A. (2009). Why did the average duration of unemployment become so much longer? Journal of Monetary Economics, 56(2), 200-209.
Naqibullah, H., Rahmatullah, P., Zmarai, M., Safiullah, S., and Ahad, Z.A. (2020). The long-run determinant of inflation in Malaysia: A Philips curve review. European Journal of Molecular & Clinical Medicine, 7(11), 4549-4563.
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Okun, A. (1962). Potential GNP: its measurement and significance. In: Proceedings of the business and economics statistics. American Statistical Association, Washington, DC, pp 98-104.
Pillay, K.G. and En, T.B. (2021). prediction of the unemployment rate in Malaysia based on macroeconomic factors. Enhanced Knowledge in Sciences and Technology, 1(2), 30-39.
Qin, Y. (2020). The relationship between unemployment and inflation - evidence from U.S. economy. Advances in Economics, Business and Management Research, 59, 157162.
Ramli, S.F., Firdaus, M., Uzair, H., Khairi, M., and Zharif, A. (2018). Prediction of the unemployment rate in Malaysia. International Journal of Modern Trends in Social Sciences, 1(4), 38-44.
Rhee, H.J. (2018). Economic growth and unemployment in Korea implemented by Okun’s Law: an application of differenced and modified models. Asia Pac. J Multimed. Serv. Converg. Art Humanit. Sociol., 8(5), 63-74. 10.21742/AJMAHS.2018.05.42
Said, R., Jamaludin, S., Ismail, N. W., Nor, N. M.& Yong, C. C. (2021). Measuring mismatch unemployment in the Malaysia labor market. International Journal of Economic Policy in Emerging Economies, 14(3), 227-247.
Tan, Z. G., Deborah, C. Y. K., Vaisnavi, M. R., Renato, L. (2022). Industry 4.0 Technology Adoption in Malaysian Manufacturing: Strategies for Enhancing Competitiveness, ASB Working Paper Series 11/2022 Center of Technology, Strategy and Sustainability, 1 -50.
Zulkiply, O. (2017). Malaysian Institute of Economic Research (MIER). Pertumbuhan ekonomi negara dan keperluan buruh asing. Retrieved from https://www.mier.org.my/old/newsarticles/archives/pdf/DrZul11_07_2017.pdf
Afolabi, B., and Olayinka Bobola, A. (2020). Population growth and unemployment in Nigeria. Journal of Economics and Sustainable Development, 11(2020), 2, 98-106.
Al-kasasbeh, O. (2022). The relationship between unemployment and economic growth: is Okun's Law valid for the Jordan case? International Journal of Economics Development Research (IJEDR), 3(3), 217-226.
Alalawneh, M., & Nessa, A. (2020). The impact of foreign direct investment on unemployment: Panel data approach.
Ali, O., Omar, M., and Yusuf, S. (2021). Population growth and unemployment in Zanzibar. International Journal of Sciences: Basic and Applied Research, 59(2), 36-47.
Baba, J. F., & Abang Ali, D. H. (2021). Economic Determinants of Unemployment in Malaysia: Short–and Long–Run Causality. Journal of Public Administration and Governance, 11(1), 251 - 272.
Bal-Doma?ska, B. (2022). The impact of macroeconomic and structural factors on the unemployment of young women and men. Economic Change and Restructuring, 55(2), 1141-1172.
Bartelsman, E., Haltiwanger, J., & Scarpetta, S. (2013). Cross-country differences in productivity: The role of allocation and selection. American Economic Review, 103(1), 305-34.
Chand, A., 2017. MG316: Comparative Employment and Industrial Relations: Coursebook. Suva: The University of the South Pacific
Chen, L. X., Chew, Y. B., Lim, R. L. H., Tan, W. Y., & Twe, K. Y. (2017). Macroeconomic factors affecting the unemployment rate in China (Doctoral dissertation, UTAR).
Daniel, S.U., Israel, V.C., Chidubem, C.B., and Quansah, J. (2021). Relationship between inflation and unemployment: Testing Philips curve hypotheses and investigating the causes of inflation and unemployment in Nigeria. Path of Science, 7(9), 1013-1027.
Doon, R. (2021). Overeducation in Trinidad and Tobago's Labor Market: A Quantile Regression Approach (No. 822). GLO Discussion Paper.
Dvouletý, O., Lukeš, M., & Vancea, M. (2020). Individual-level and family background determinants of young adults’ unemployment in Europe. Empirica, 47(2), 389-409.
Dunsch Sophie (2016), Okun’s Law and Youth Unemployment in Germany and Poland. International Journal of Management and Economics, 34–57.
Ellen, K. A., & Abeti, W. (2019). The impact of unemployment on economic growth in China. MPRA Paper, 96100, University Library of Munich, Germany, Available at: https://mpra.ub.uni-muenchen.de/96100/
Friedman, M. (1977). Nobel lecture: inflation and unemployment. Journal of Political Economy, 85(3). 451-472.
Freund, L., & Rendahl, P. (2020). Unexpected effects: uncertainty, unemployment, and inflation.
Furuoka, F. and Munir, Q. (2014). Unemployment and inflation in Malaysia: Evidence from error correction model. Malaysian Journal of Business and Economics, 1(1), 35-45.
Hsieh, C. T., & Klenow, P. J. (2009). Misallocation and manufacturing of TFP in China and India. The Quarterly journal of economics, 124(4), 1403-1448.
Greenwood, J., & Huffman, G. W. (1988). On modelling the natural rate of unemployment with indivisible labor. Canadian Journal of Economics, 587-609.
Ishchenko, M., Adamovska, V., & Porosla, P. (2023). Management and evaluation of investments as a component of the economic security of the state with the use of accounting and analytical support, statistical methods and marketing research. Economics, Finance and Management Review, (1), 115-142.
Jamaludin, S.; Said, R.; Ismail, N.W.; Nor, N.M. (2021). Are Jobs Available in the Market? A Perspective from the Supply Side. Sustainability, 13, 1973, 1-17. https://doi.org/10.3390/su13041973
Jo, C., Kim, D. H., & Lee, J. W. (2023). Forecasting unemployment and employment: A system dynamics approach. Technological Forecasting and Social Change, 194, 122715.
Kalinová, E., & Kroutlová, K. (2023). The relationship between unemployment and macroeconomic indicators. In SHS Web of Conferences (Vol. 160). EDP Sciences.
Karimov, M., Parádi-Dolgos, A., & Koroseczne Pavlin, R. (2020), An Empirical Analysis of the Relationship between Foreign Direct Investment and Unemployment Rate: Evidence from Turkey. European Research Studies Journal, 23(1), 453-464.
Kokotovic, F., & Kurecic, P. (2022). Examining The Impact of Foreign Capital Flows on Different Types of Unemployment in Small Open Economies: A Regression Analysis Of Croatia And The Czech Republic. Economic And Social Development: Book of Proceedings, 9-19.
Korkmaz, S. and Abdullazade, M. (2020). The causal relationship between unemployment and inflation in G6 countries. Advances in Economics and Business, 8(5), 303-309. DOI:10.13189/aeb.2020.080505
Liyana, A. and Masih, M. (2018), Does the unemployment rate lead to GDP growth or the other way around? Malaysia’s case, INCEIF, Malaysia, Business School, Universiti of Kuala Lumpur.
Louail, B. (2021), Relationship between Economic Growth and Unemployment Rates in the Algerian Economy: Application of Okun’s Law during 1991–2019. Organizations and Markets in Emerging Economics, 12, 1(23), 71–85.
Md Kamrul, I. (2021), Relationship between Economic Growth and Unemployment; Measuring Okun?s Coefficient for Bangladesh. International Journal of Research and Innovation in Social Science (IJRISS), 5(8), 628-635.
Michael, E., & Geetha, C. (2020). Macroeconomic factors that affect youth unemployment in Malaysia. Malaysian Journal of Business and Economics (MJBE), 7(2), 181-181.
Mohd Azhar, A. A. and Ibrahim, N. A. (2021), Factors Affecting Unemployment Rate in Malaysia. E-Prosiding Seminar Antarabangsa Islam dan Sains, 670 – 679.
Muhd Irpan, H., Mat Saad, R., Md Nor, A. H. S., Md Noor, A. H., and Ibrahim, N. (2016), Impact of Foreign Direct Investment on The Unemployment Rate In Malaysia. Journal of Physics: Conference Series 710.
Mukoyama, T., & ?ahin, A. (2009). Why did the average duration of unemployment become so much longer? Journal of Monetary Economics, 56(2), 200-209.
Naqibullah, H., Rahmatullah, P., Zmarai, M., Safiullah, S., and Ahad, Z.A. (2020). The long-run determinant of inflation in Malaysia: A Philips curve review. European Journal of Molecular & Clinical Medicine, 7(11), 4549-4563.
New Straits Times. (2021). 37,415 MSMEs closed during MCO 3.0. https://www.nst.com.my/news/nation/2021/09/731825/37415-msmes-closed-during-mco-30#google_vignette.
Okun, A. (1962). Potential GNP: its measurement and significance. In: Proceedings of the business and economics statistics. American Statistical Association, Washington, DC, pp 98-104.
Pillay, K.G. and En, T.B. (2021). prediction of the unemployment rate in Malaysia based on macroeconomic factors. Enhanced Knowledge in Sciences and Technology, 1(2), 30-39.
Qin, Y. (2020). The relationship between unemployment and inflation - evidence from U.S. economy. Advances in Economics, Business and Management Research, 59, 157162.
Ramli, S.F., Firdaus, M., Uzair, H., Khairi, M., and Zharif, A. (2018). Prediction of the unemployment rate in Malaysia. International Journal of Modern Trends in Social Sciences, 1(4), 38-44.
Rhee, H.J. (2018). Economic growth and unemployment in Korea implemented by Okun’s Law: an application of differenced and modified models. Asia Pac. J Multimed. Serv. Converg. Art Humanit. Sociol., 8(5), 63-74. 10.21742/AJMAHS.2018.05.42
Said, R., Jamaludin, S., Ismail, N. W., Nor, N. M.& Yong, C. C. (2021). Measuring mismatch unemployment in the Malaysia labor market. International Journal of Economic Policy in Emerging Economies, 14(3), 227-247.
Tan, Z. G., Deborah, C. Y. K., Vaisnavi, M. R., Renato, L. (2022). Industry 4.0 Technology Adoption in Malaysian Manufacturing: Strategies for Enhancing Competitiveness, ASB Working Paper Series 11/2022 Center of Technology, Strategy and Sustainability, 1 -50.
Zulkiply, O. (2017). Malaysian Institute of Economic Research (MIER). Pertumbuhan ekonomi negara dan keperluan buruh asing. Retrieved from https://www.mier.org.my/old/newsarticles/archives/pdf/DrZul11_07_2017.pdf
Published
2024-10-05
How to Cite
Nasir, S., Jamaludin, S., Safian, S. S. S., Malek, N. A., & Abdul Aziz, M. R. (2024). Revisiting Okun’s Law: Evidence from Malaysia. Information Management and Business Review, 16(3(I)S), 551-561. https://doi.org/10.22610/imbr.v16i3(I)S.4082
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Copyright (c) 2024 Syahira Nasir, Salwaty Jamaludin, Sharul Shahida Shakrein Safian, Nazurah Abdul Malek, Muhammad Ridzuan Abdul Aziz
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