Output and Unemployment Dynamics: Okun’s Coefficient for Pakistan

International Journal of Research and Innovation in Social Science (IJRISS) | Volume II, Issue VIII, August 2018 | ISSN 2454–6186

Output and Unemployment Dynamics: Okun’s Coefficient for Pakistan

Nazia Latif¹, Dr. Muhammad Imran Hanif², Dr. Abu Bakar Abdul Hamid³, Zeeshan Ahmed⁴

¹M.Phil Scholar, School of Economics, Bahauddin Zakariya University, Multan, Pakistan
²Post Doc Fellow, Putra Business School, University of Putra Malaysia, Malaysia
³Professor, Putra Business School, University of Putra Malaysia, Malaysia,
⁴MS Scholar, Bahauddin Zakariya University, Multan Pakistan
Corresponding Author: Nazia Latif

Abstract:-The major aim of the paper is to trace out the evidence about the possible affiliation between level of unemployment and growth rate of output which was proposed empirically by Arthur Okun in early sixties. To perform this multivariate time series data has utilized ranges the period from 1972 to 2016 of Pakistan. To access the association and to quantify the magnitude of relationship ARDL, Bound test approach utilized. To check the order of integration Philips perron (PP) and ADF (Augmented Dicky Fuller) test applied. Paper confirmed the existence of inverse affiliation between level of unemployment and growth of output in Pakistan. But the intensity of association is very low, suggests that the political unrests and lack of attention of policy makers toward factor markets hampers the employment creation effect of growth of output. To check the pattern of association Granger causality test uses that prescribed the existence of unidirectional affiliation through unemployment to growth rate of output in Pakistan.

Keywords: Growth rate of output, level of unemployment, Okun’s Law; ARDL

I. INTRODUCTION

Both Developed and developing countries are thirsted to attain economic growth and sustainable development with lower unemployment and inflation rates. As far as growth experiences are concerned Pakistan has faced numerous ups and downs in previous eras. Growth of output can be explained within ‘the increase in real output of goods and services produced within the boundary line of the country’. Growth rate of output attached with maximum utilization of country’s existing resources that depends upon the maximum employment of factors of production. Simply it is implied that hiring more labor with given capital cause to increase output over time ends with economic growth showing the favorable association between output and employment level of the country.

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