Relationship between Economic Growth and Unemployment; measuring Okun’s coefficient for Bangladesh

International Journal of Research and Innovation in Social Science (IJRISS) | Volume V, Issue VIII, August 2021 | ISSN 2454–6186

Relationship between Economic Growth and Unemployment; measuring Okun’s coefficient for Bangladesh

Md Kamrul Islam¹, Khawaja Saifur Rahman², Mehnaz Akter^3
1Senior Lecturer, Independent University Bangladesh
²Senior Lecturer, Independent University Bangladesh
³Student, Independent University Bangladesh

Abstract: This paper intends to determine the Okun’s coefficient and the validity of Okun’s law in Bangladesh. Moreover, further analysis is done to determine the impact of female unemployment on economic growth of Bangladesh. We have used time series annual data of Bangladesh with a time period from year 2000-2019. The Hodrick-Prescott filter detrending technique has been used to generate the unemployment gap and output gap, two unit root tests have been done to check for stationarity of the data collected i.e. Augmented Dickey Fuller test and the Phillips-Perron test, the Johansen co-integration test has been performed to check for long run cointegration between the variables and finally the Ordinary Least Square (OLS) regression is used to determine the type of correlations between the variables and finally two tests have been performed (Breusch Pegan and White test) to check for heteroscedasticity in the error term.

Key Words: Unemployment, Ukun’s law, Regression, Economic Growth, Heteroscedasticity

I. INTRODUCTION

The macroeconomic issue namely ‘Unemployment’ is a significant factor that represents a great deal regarding the performance of a country especially the growth level. Moreover, when the term is linked with the output level of a country and their relationship is analyzed, a bigger picture of the country’s performance can be presented in terms of output level as a result of job availability.
The term ‘unemployment’ refers to the situation where people, from the working population, are willing to do work and are actively searching for jobs but unable to find one. Unemployment is considered to be a matter of great crisis, faced by most of the developing countries, including Bangladesh. A higher level of unemployment means that the human capital is not being utilized efficiently and many graduate students (the youth population) are not getting the required jobs; the unskilled labors are not being given proper training and hence jobs.
In most of the developing countries, the basic reason of unemployment comes from an imbalance between the availability of jobs and the supply of labor. In Bangladesh, the Dhaka city is the most crowded as majority of the population comes here from rural areas in search for a job and many of them end up having no jobs at all. As a result, there is a surplus of labor compared to the amount of job opportunities. The overall situation leads to a downfall in the level of economic growth of the country. In Africa, the unemployment has been on its peak where most of the families did not have enough income and a better standard of living, leading to poverty as a result of the decline in its economic growth (Kareem 2006).

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