1- In Pakistan unemployment is becoming a critical issue. Developed or Undeveloped countries the increase in growth of high level of unemployment is a severe problem. This high level of unemployment can produce a lot of social problems. Determinants of unemployment have been examined through various studies. These studies have been examined in less developed or developed countries by both micro and macro perspectives. In these studies, theoretical models have been used. The impact of foreign direct investment on capital accumulation and unemployment in two sector dual economy model was determined by Buffie in 1993. It was seen from his findings that foreign direct investment in high wage sector was packed out domestic capital. A commonly chosen framework of job search model was presented by some researchers. In this model, it was explained that when people became unemployed their unemployed duration depends on probability of accepting and rejecting job offers. It is due to unemployment that crime, suicides and poverty rates have raised. This is the reason due to which not only workers are affected but also their families and country because if there is no job it means no income at individual level as well as national well. Some researchers then used the information in nationally representative survey to analyze unemployment duration in Russia in early years of transitions. From this survey, it was found that married woman was found to experience longer unemployment as compared to males. It was also seen that old individuals were found to be longer experienced unemployed as compared to younger individuals. It was argued by a researcher Lipsey that rivalry of markets was the main reason for positive relationship between foreign direct investment and the domestic employment opportunities. In 1998, the relationship between unemployment and taxation in OCED countries during the period 1983-1994 was focused by Elmeskov. While studying this, he used Hausman specification test and concluded that in short run as well as long run the taxation has positive and exogeneous impact on unemployment. It was shown in findings that in long run, taxation as major determinants of unemployment. In 2001, another researcher Kingdon did research on unemployment in South Africa by using Probit model. In this two national household surveys for the mid 1990’s was used. The results obtained from this study was that in South Africa unemployment was determined by race, age, home, ownership and location. Similarly, in 2003 Izraeli and Murphy studied the influence of degree of diversify on industrial and unemployment rates and per capita income in seventeen states. From this study, it was found that a state with more diversified base has lower unemployment rate. But it was seen that the evidence on the relationship between per capita income and industrial diversification remained inconclusive. Then in 2005 the determinants of unemployment of Ukraine between 1997- 2003 was studied by Kupets. From this study, Ukrainian Longitudinal Monitoring Survey 2003 was used to research an individual conditional based probability about leaving unemployed to employ. In 2006, the relationship between the trade, economic growth and unemployment and FDI in Taiwan by Chang. While studying, he applied VAR method of variance decomposition and used impulse response function analysis. The result showed that export and economic growth positively affected FDI inflow but export expansion was affected negatively on FDI out flow. It also proved that there was no relationship between FDI and unemployment. In 2007 Marika studied the labor market to identify the relationship between capital stock and unemployment. The researchers used indirect channels capital stock and their transmission for estimation of single equation unemployment model. Interest rates and investment ratios were used as major variables. It was also found by them that capital stock is key determinant of unemployment. In 2009 Wright examined the long-term relationship between interest rate money supply and unemployment. The results showed that these variables were positively related but at low frequencies. From this they also provided a unified theory for analysis of labor and goods markets. In 2009, a comprehensive approach was used by Akhter to unemployment by using VAR. From this their interest was to determine the interrelationship between Foreign Direct Investment, Export, Gross Domestic product and unemployment in Turkey. The data used was from the period 2000-2007. The findings shown by them was that foreign direct investment did not reduce unemployment in Turkey. No evidence was found by them that export led growth in Turkey. In 2010, the relationship between growth and unemployment for the period 1972-2006 was examined by Iqbal. An argument took place between researchers as they argued that GDP growth rate was the major source minimize unemployment for this they used ADF test which showed that for reducing unemployment there is need to accelerate growth.
2- The research about the relationship between economic growth and unemployment has
started in the 1950s (Aricó, 2003). The standard matching function standardized based on the neoclassical growth model. Pissarides (1990) made a connection between unemployment and growth through hiring costs and profits. Since, in steady-state, both hiring costs and profits increase at the same rate, a higher (lower) growth rate has two effects which are Future profit has been increased and (decreases) future hiring costs. As growth rate rises, the organization’s optimal choice will be hiring more today and by giving new vacancies. Hiring costs which are save in future in other words, a lower rate is followed by higher growth of unemployment and a increase rate of opening vacancies. Naturally, when a growth rate rises it will increase the investment return rate. Which encourages new organizations to enter the market, to make rise in the number of job openings and, thus decreasing unemployment.
In their paper, Aghion and Howitt (1994) have also discovered another effect concerning the growth-unemployment relation in the future and long run, the so-called destruvtive effect created as an similar effect to the Pissarides (1990). Taking this framework as an account this makes an increase in the growth rate which will trigger the capitalization effect and creative destruction proposed effect in two different ways. On the one hand, rise in the growth rate will also rise the price growth rate of human capital, decreases the life-time of production units and, therefore, rises the job- destruction rates whereas the capitalization based effect dominates at higher growth rates or a monotone relation been increased between growth and unemployment (Aricó, 2003). The first or basic effect is called the directly creative destruction effect while the other one is the indirect creative destruction effect. The overall total effect on unemployment will based on the model upon parameterization.
There are possibly two results which is a reverse U-shaped relation between growth and unemployment or a higher monotne relation between growth and an unemployment. Therefore, in Bean and Pissarides’ (1993) model, both growth and unemployment are considered as variables which endogeneous in contrast with Pissarides (1990) and Aghion and Howitt (1994) where the growth rate is considered an exogenously variable. By combining an overlapping generations endogenous growth model with matching frictions in the labour market, Bean and Pissarides (1993) could analyze a set of new relations, namely the impact of a change in the propensity to save or consume on the growth rate or on (un)employment. According to Aricó (2003) approach, this work is one of the first attempts to describe labor supply in a growth-unemployment framework.
Acemoglu (1997) takes the search based on the matching model as a starting point and introduces a potential based heterogeneity by making the existence of two types of workers (skilled and unskilled). The possibility of organizations to possess or not the new technology. By noticing that there is no education system or learning-by-doing machinery in this model which makes an unskilled worker can only become skilled worker firstly if hired by a organization and secondly organization decides to train as much as the workers. If each organization assumes that all the other organizations will not be indulge with the technology none of the organizations will come up with the new technology and the anticipation of training costs is taken into deliberation in the problem which asserts on the profit maximization, reducing the incentives to hire. Once again, therefore the expectations are self-fulfilled and the result is a decrease in growth rate and a increase in an unemployment rate. Depending on the expectations of an entrepreneurs there could be two assumptions on equilibriums: one when there is an adoption in the new innovation or technology by all the organizations, implying a decrease unemployment rate. Although, the social planner makes an incentives to adopt the new technology are much more than the organization’s incentives. An organization that adopted the innovation will be engaged into the training costs and will only facilitated from the skilled worker during a mentioned period. The previous four effects are considered the most widespread mechanisms that emerge from the literature on the relationship between growth and unemployment. Nevertheless, following Aricó’s (2003) approach, several other authors have also given their part into this research field. King and Welling (1995), on the other hand, increased the work on Pissaride’s (1990) research model by observing that instead of organizations, workers are the ones who looks for the new job and bear the cost as well. King and Welling, 1995) concluded that there is an inverse relation between growth and unemployment. In the King and Welling’s (1995) framework the growth rate influences positively the searching rate parameter. King and Welling (1995), on the other hand, extended the Pissaride’s (1990) model by other than organizations, workers are the ones who bear the cost of searching for a new job. King and Welling, 1995) resulted that there is a negative correlation between unemployment and growth, in the King and Welling’s (1995) framework the growth rate observed positively the rating parameters.
3- There are many studies which are revealed on the relationship among unemployment; inflation,economic growth, trade openness, real GDP per capita, and Urban Population altogether population for different countries for different time periods. It is given as below:
Stephen (2012) made that the impact of unemployment on economic growth for a case of Nigeria for the period from 1980 – 2008. Dutt,Mitra, and Ranjan (2009) and Felbermayr, Prat, and Schmerer (2011b) had tested empiracally the relationship between unemployment and openness of trade by using cross section and panel data for the high quality OECD countries respectively. They came up with the result that there the effect of Inflation and Economic Growth on Unemployment progress of 3rd International Conference on Business Management (ISBN: 978-969-9368-07-3) prevails an inverse relationship between trade liberalization and unemployment. Hence, economies which is furthur tend to have decreasing rate of unemployment on average basis. Berentsen and Menzio and Wright (2008) discovered the inflation and unemployment association for the U.S. for the period 1955 to 2005. They found that there relationship directly exists between inflation and unemployment in the U.S. in future. Both researches came up with that there exists an negative relation between inflation and unemployment in the long run in case of Germany. Janiak (2006) came up with the link between exposure based on trade and equilibrium unemployment. To him, the organizations which ahs higher production and productivity will come up more job opportunities as they came up with the higher profits from the market and these organizations will reduce the negative effect of job destruction which comes into being due to the low productivity which exits through the organizations from the market. Haider(2006) marked the significance of urbanization in Pakistan and they discussed until 2030 the population who is living in the urban areas will elevate by almost 140%. people may move themselves from the rural areas to urban areas for their living standard to get improved and better living can be taken into cities.
The concept therefore taken of urbanization cannot be taken as bad. The first result made by them was which impacted positively of cyclical output on unemployment which differentiate from the negative impact of output based on cyclical on unemployment in the short run, the second conclusion made by them was that their dataset support this their proposition that the negative impact of cyclical output on cyclical unemployment is more significant than that of the positive impact of cyclical output on cyclical unemployment’s.
4- Unemployment is the biggest and severe issue in Pakistan. It is essential to sort out the causes which leads to unemployment in Pakistan. According to one of the survey, the unemployment has been deliberately increased from 5.6% in 2009 to 6% in 2011 in which females are more unemployed than male. Two methods were used to collect and observe the data. First was quantitative method in which questionnaire was filled by 100 respondents and statistical formula was applied. Secondly, interviewed many of the respondents for the accurate result.
5- “The connection is measured between unemployment and the rate of
Change of Money Wage Rates in the United Kingdom 1861–1957. William Phillips
have discussed that there is a strong negative connection regarding unemployment In the United Kingdom inflation has taken over the observation period. Among prominent economists who supported the existence of the Phillips Curve and in the linking between these two macroeconomic variables under the refrence of the United States economy which resulted that there existed an inverse relationship between unemployment and inflation. Contributions are made significantly to the research on the Phillips Curve were made by Solow (1970) and Gordon (1971) whose studies has been done on the United States economy conorganizationed the existence of a negative trade-off relationship between unemployment and inflation in that country. The findings are found empirically from Solow’s and
Gordon’s research based studies which have been known as the “Solow-Gordon affect “of the Phillips Curve. However, based on solid theoretical foundation and several studies that conorganizationed the validity of the Phillips Curve, some economists voiced their strong disagreement that there exists an inverse relationship between unemployment and inflation. Such prominent economists as Friedman (1968) and Phelps (1967) did not supported the Phillips Curve hypothesis and offered arguementation based on counter to the existence of the trade-off relationship between unemployment and inflation. In the long
run, unemployment rate would be driven to the vertical pattern and the trade-off
relationship between the two variables would cease to exist.
According to Friedman (1968) and Phelps (1967),basically makes the policy may be concerned about the consequences on short run of the price based stabilization policy that may have a impact negatively on unemployment rate. The researcher
also added that in future, unemployment would move toward an equilibrium
level which is dubbed as a natural rate of unemployment or “non-accelerating
inflation rate of unemployment (NAIRU)”. Robert Lucas (1976), a prominent Chicago based economist school of economic thought and among the critics of the Phillips Curve, argued that the trade-off relationship between unemployment and inflation would be present only if workers do not expect that policymakers could create an artificial scenario of high inflation combined with low unemployment. This line of argumentation is known as the “Lucas critique”. A systematic and thorough criticism of the Phillips Curve put forward by Lucas in the 1970s led to a loss of interest in this topic among the academics. However, in the 1990s, there occurred a revival in the Phillips Curve research and the topic became “the subject of intensive debate (e.g., the symposium in the Journal of Economic Perspectives)” (Debelle and Vickery 1998, 384). Among the numerous studies in the 1990s, a study by King. Watson(1994) analyzed the hypothesis using the U.S. post-war macroeconomic
data. Recent improvements in the methods and calculations of data analysis allow a more thorough examination of the Phillips Curve hypothesis.
Their results assured the existence of the “common” Phillips Curve. As DiNardo and Moore (1999, 19) concluded as in sum we believe that our results show a relationship remarkably between relative inflation and relative unemployment. Turner and Seghezza (1999) employed and examined the method based on panel the Phillips Curve in 21 OECD countries periodically from the early 1970s to 1997. To analyze the pooled based data, they used the method and ways of seemingly unrelated estimation (SURE) rather than the OLS. They came up that unemployment rates had a relationship significantly with the inflation rates based on non-tradable. However, Masso and Staehr (2005) who used the panel data dynamically method failed to imply a significant relationship between inflation and the unemployment rate.