A PROJECT REPORT

ON

Unemployment its Causes , Effects and Impacts on Economic Growth in Pakistan

BY

Areej

167121

In the partial fulfillment of the requirement for 8th semester

Under the guidance of

Head of Department Professor’s Name
Mam Ruqia Mam Irum Naz

Department of Economics
Government Graduate College for Women, Samundri
2019-2023
 CERTIFICATE
This is to certify that Areej of Government post graduate college for
women samundari has successfully completed the project titled
Unemployment its Causes , Effects and Impacts on Economic Growth in
Pakistan and has submitted the project file in the required format. The
project was completed under the guidance of Mam Irum Naz.

Supervisor Name
Mam Irum Naz Signature:…………
 ACKNOWLEDGMENT

First and foremost, I would like to profoundly praise the Allah for enabling
me to see this great moment. I would like to thank and express my deepest
gratitude and appreciation to my supervisor Mam Irum Naz and head of the
Department of Economic Mam Ruqqia Nasir who gradually helped me in
every way which I needed to go through all difficulties. We would like to
say thanks to our beloved parents who gave us everything we ever asked and
helped us at every step of life and our friends also deserve many thanks for
their loving encouragement and prayers. We are remembering the whole
BS(ECO)2019-2023 batch, in accompany to whom we set in an academic
journey, which is being conclude now. Thanks you for being there, our dear
fellows.
 Course of Content
Aknowledgement
Abstract
1. Introduction
Caues of Unemployment in Pakistan
Effects of Unemployment in Pakistan
Impacts on Economic Growth
2. Literature Review
3. Data and Methodology
4. Result and Interpretation
4.1 Descriptive Statistics of Data
4.2 Unit Root Test
4.3 Bound Test Results
4.4 ARDL ECM Result
5. Conclusion and Recommendation
5.1 Population Control
5.2 Development of education System
5.3 More assistance to self-employment
5.4 Development of the industry & new Businesses
5.5 Reducing retirement age
5.6 Ensuring political stability
5.7 New employment programs
6 . References
Abstract
This study aims to examine the effects of growth-induced unemployment in
Pakistan from 1974 to 2020. In this study, the “Auto regressive Distributive
Lag”ARDL technique for empirical investigation. GDP growth is the
dependent variable used as an indicator of economic growth. In this study,
the explanatory variable is the unemployment rate, population growth rate,
inflation rate, foreign direct investment, and public spending. The empirical
results of the study show that unemployment and inflation are both
negatively correlated with economic growth and have statistical significance.
Population growth rates have a positive and statistically significant impact
on economic growth. There is a short-term co-integration between variables.
The results show that the government should take appropriate measures to
create employment opportunities in the country, promote economic growth
and reduce unemployment.

Keywords:
Unemployment , GDP , Inflation, Population Growth Rate, Auto-Regressive
Distributed Lag Pakistan
1. Introduction
“Unemployment is defined as the ratio of people who Unemployment is
consider a reflection of the economy of a country”. Pakistan faced the
problem of unemployment due to its weak economic condition from the start.
The inflation and the lack of industry is the major reasons of unemployment
in Pakistan.
There are number of reasons of unemployment in Pakistan the problem is
too deep and is around for a long time. We first have to understand that, it is
not just the economy that effect the rate of unemployment, but the general
interest and mindset of our people play an important role too. The students
have zero consideration of what their future will be they take engineering,
medical and commerce just because no other segment of education is
developed enough. Majority of them realize afterwards that these three
sectors do not have enough jobs for them. The right future counseling is
required and the education system plays an important part of guiding them
to the right direction. Then the economy of Pakistan is not stable from the
beginning, the industry suffers in many ways. There is political pressure
manipulating and becoming a hurdle for the growth of our industry. Karachi
is the center of 70% of the trade of Pakistan and is under the influence of
many political parties. These parties for to their own gain open and shut the
markets and endanger the economy without any fear. The growing
population and many other factors are the reason of unemployment in
Pakistan. Most of the unemployment is cyclical which the worst among all.
The problem have the roots to the very core of our society. The chaotic
environment and the mental stress level of the people in Pakistan have allot
to do with the unemployed youth. The crime rate and the societal problems
we face can be reduced to a margin if we can provide jobs to our talented
youth. The falling into dark sides have everything to do with the
unemployment.ants to do a job and are searching for a job but
cannot find a job.
Types of unemployment
There are basic 5 types of unemployment.
1. Fractional Unemployment
The time period of unemployment when a person loses its current job and in
search of another job is called fractional unemployment.
This kind of unemployment is harmless and give the basic idea why we
cannot achieve full employment, some of the employees will always be in
transition.
2. Structural Unemployment
The period when the dynamics of work changes and the experience of the
people remain in the same. The skill set required for the new jobs become
rare. The people having the skills of their past jobs become useless. Such
unemployment is termed structural unemployment. The main reason of such
unemployment is industrial revolution and automation etc.
3. Cyclical Unemployment
When the economy have the deficiency of jobs to provide to everyone who
wants to work. Many people remain unemployed. Such unemployment is
known as cyclical or Keynesian unemployment. The demand of most goods
fall and in the response less production is required which will definitely
require less workforce.
4. Classical unemployment
Classical or real wage unemployment is when the employees demand high
wages, and refuse to work accept low wages. Such unemployment is
classical unemployment.
5. Seasonal Unemployment
As the name signifies the unemployment occur in different seasons is called
seasonal unemployment. The workforce of production of wheat will become
useless in winters.
The causes of unemployment in Pakistan are diverse and are the direct result
of Significant adverse demographic shifts and ineffective economic ,
educational and social policies administered by recent governments.
The impact of unemployment is similar the impact on the Pakistani
economy (coupled with high inflation) is far-reaching, Levels of poverty
lead to social exclusion and increased crime rates, with devastating
consequences for both individuals and the same goes for family.
One of the main drivers of the current high unemployment rate in Pakistan
population is growing rapidly.According to the 2023 census, Pakistan`s
population will be about 250 million.This is an increase of 37 million, or 17.
This shows the current demographics The unemployment problem is even
more acute, especially for young people, who are a part of it.About 60% of
the total population, unemployment rate is as high as 10% compared with
the overall proportion of 5.Another big problem in Pakistan directly and
causally related to unemployment Level means that a large portion of the
population lacks education and basic literacy.
Deficiencies in Pakistan's education system are often cited as one of the
biggest reasons for the high unemployment rate.
It is essential to do drastic State educational and social policy reforms are
being implemented to combat illiteracy in the country Pakistan will reduce
the impact on unemployment.Another problem is Pakistan's economic
instability in recent years.There was a serious lack of financial aid an
investment with little business or market growth.
Moreover, politically Instability, corruption and incompetent government
policies also had a direct impact Depressive nature of the economy with
high inflation, interest rates and economic slowdown currency.All of this
has had a significant impact on the domestic unemployment crisis.

Causes of unemployment in Pakistan:

Several factors contribute to the high unemployment rate in Pakistan:

Population growth:
Pakistan's rapid population growth is putting enormous pressure on the
labor market. Labor force growth outstrips job creation, leading to a surplus
of job seekers.
Educational mismatch:
The education system often fails to match the needs of the labor market.
This leads to a mismatch between the skills graduates possess and the skills
demanded by employers.
Structural problems:
The Pakistani economy is characterized by an imbalance between the
agricultural and industrial sectors. The dominance of the informal sector,
inadequate infrastructure, and lack of diversification impede the creation of
productive employment opportunities.
Economic instability:
Frequent economic crises, inflation and poor financial management erode
investor confidence and hinder job creation. Uncertainty prevents businesses
from expanding and investing, leading to a diminished job outlook.
Political turmoil:
Political instability and policy inconsistencies disrupt business and
discourage foreign investment. This instability, coupled with corruption,
impedes economic growth and job creation.
Growing population
One of the basic problem of Pakistan is the growing population.
According to a report in the coming 2030 the population of Pakistan will
reach 245 million. Let’s just take a second to consider how much industry
will be required to give jobs to that many people. Even if half of them are
eligible and willing to work.
 The education and skill development of that many people is becoming more
and more difficult. The factors that are becoming the reason of this growth
of population are as follows

· Illiteracy

· Deficiency of awareness

· Early marriages

Defective education system

The education system of Pakistan is the terrible and horrifying.
Pakistani education system is completely dedicated to create robots to do
jobs. If everyone is going to do jobs for others, who will create jobs. There
is a deficiency of entrepreneur in Pakistan. Our education system is focused
on 3 main sectors.

· Doctors

· Engineers

· Business man

When you look at the wider pictures there are thousands of other sectors in
which we can find a respectable jobs. The development of the skills required
for those jobs are undermine in our education system. The promotion of
those sectors and availability of the skills required for those jobs is an
extreme need of Pakistan.
Current Economic State of Pakistan
The economic downfall of Pakistan is no secrete these days. The
prices of normal commodities are extremely high. That is creating a demand
deficiency. Many business are falling badly there are estimated 5 hundred
thousand people lost their jobs in previous ten months. Many companies are
downsizing and lowering the wages of their employees to minimize their
losses. Due to which most people in Pakistan are scared to start any new
business, thus no new jobs. If the economic state remains the same the
unemployment rate will rise from 6.14 and that is an alarming situation.
Extreme measures are required to handle this economic downfall.
 Energy Crisis
The basic problem for our industries and factories is the energy crisis
of Pakistan. The load shedding haunted us for 20 years till 2017. Now we
are creating most of our energy through furnace oil. Which is, let’s face it
the most costly. The cost of electricity is too high that the product we create
in our industries cost too much as compare to the products of the world.
Shift of our Textile industries
Due to high electricity, high labor charges, taxation and other
problems in production. Nearly 40% of our textile industry is shifter too
Bangladesh (According to “The News”). If this keeps on going the textile
will completely leave Pakistan, and that will harm the currently destroyed
economy of Pakistan more. The 40% jobs of Pakistan’s textile is now
transferred to Bangladesh.

High Taxation rate

The taxation on raw material, duty tax, holding tax, income tax and
sales taxes all are causing our industry to downfall because of that the
industry is not flourishing. Industry of any kind will not and cannot make
more jobs and participate in the economy of the company until the
government is by their side and provide subsidies and facilities.

Dollar Rates
The dolor rates are getting higher and higher by every passing day.
The raw material we purchase is becoming more and more unaffordable.
The increase in the rate of dolor is becoming poisonous for our own
currency. The value is becoming low the product we sell for 1$ in
international market cost us 167 Rs to us. The export is seriously damaging
and the industries are not producing to export.
Retirement Cycle
The retirement age in Pakistan is 60 years. The job one occupy keep
it for nearly most of his/her life. The jobs are full and the people working on
them are not ready to leave it at any cost. The new jobs are not creating
because of recession in Pakistan. If the retirement limit become 40 or 45
there will be many new jobs every year.
Law & Order
The law and order situation of Pakistan makes it very unfavorable in
the eyes of the foreign investors. The investors are scared to invest and
create industry in Pakistan. On the other hand Bangladesh and India is
attracting them with low wages and less barriers to entry and their economy
is becoming stronger every passing day. The law and order situation is
crucial for foreign investment and industry.
 Lack of Technology
The up to date machinery and technology is a problem in Pakistan.
Our agriculture is still depended on ancient techniques. Due to which we are
wasting our time and money. Even production and the proper use of
technology in production is not available in Pakistan. Many resources like
coal, gas, minerals and agriculture can provide billions of Dolor to this
economy with the proper technology and ways. The places like Gilgit
Baldistan, Balochistan, and Khewra are very rich in those resources and we
can create jobs and industry there if we have proper technology

The effects of unemployment:

Unemployment has far-reaching consequences that go well beyond the
individual level:
Poor:
Unemployment often leads to poverty as individuals and families struggle to
meet their basic needs. The lack of stable income can push households into a
vicious cycle of deprivation.
Social unrest:
High unemployment can contribute to social unrest and discontent, as
frustrated job seekers may resort to demonstrations and demonstrations to
demand better opportunities.
Crime rate:
Unemployment is associated with increased crime rates. Those who cannot
find a legitimate livelihood may turn to illegal activities as an alternative
source of livelihood.
Health problems:
Long-term unemployment can lead to mental health problems such as
depression and anxiety. Lack of financial stability and access to health care
can exacerbate health problems.
Brain bleeding:
Skilled people facing limited job prospects may seek opportunities abroad,
leading to a “brain drain” in which a country loses its human and intellectual
capital.
Effects on Society
1. Standards of Living
When there are less people in home employed the pressure on the
employed persons goes up and the living standards of their life decreases. If
there are 5 family members and only one is earning the wage will be divided
to 5. This will seriously decrease the living standards of the family. Same is
happening in Pakistan the man is the only bread earner and the burden of
rising inflation is on the shoulder of one person in a family or two.
2. Law & Order
The crime rates are directly proportional to unemployment.
Pakistan have the crime rate so high due to that very reason. A person doing
a job is very unlikely to commit a crime. The time and planning required to
break law and try to get away with it only comes to an unemployed man.
The truth is the people committing crimes have so much to do with the
condition of their life hold. If starving an honest man can also think about
the criminal acts.
3. Mental Disturbance
The basic problem with unemployment is the societal pressure
and anxiety of not having a job. Being dependent on someone else makes us
disturbed to the very core. The panic in our youth is due to that most of them
are unemployed. Our economy is not able to provide them with the basic
skill and jobs to earn their lively hood. People of Pakistan have two basic
options to do a job or to do a business. With recession doing business is a
foolish step. With a lost cause industry, there are not enough jobs for the
people. The tension in the public and mostly the youth is due to the
unemployment rate.
Impact on the economy:

The impact of unemployment on the Pakistani economy is profound:

Reduce economic growth:
High unemployment hinders the potential for economic growth due to under
utilization of human resources. The unemployed represent untapped
production and consumption potential.
Government resource burden:
The government is responsible for providing social protection programs,
unemployment benefits and other support systems for the unemployed. This
diverts resources that could otherwise be invested in infrastructure and
development projects.
Loss of human capital:
Prolonged unemployment leads to skills erosion and reduced work
experience. This loss of human resources can hinder the country's
competitiveness in the globalizing economy.
Low tax revenue:
Unemployment reduces total taxable income, resulting in lower government
tax revenues. This can have an impact on public service delivery and
infrastructure development.(Muzamil Akhter August 1, 2019)
Unemployment is one of the major problems of developing countries. The
4,444 different studies on unemployment and growth have been presented
worldwide.The rising unemployment rate reflects the country's low levels of
income and production.This again shows the low standard of living of
people in the business world. Tanha (2018) found that economic stability
could be achieved by reducing inflation and unemployment through the
careful design of macroeconomic policies. Chowdhury and Hossain (2014)
conclude that the relationship between real GDP, exchange rate, and
unemployment is negative.
Khobai, Kolisi and Moyo(2018) finds a negative relationship between
unemployment and economic growth in the long run
and the short run. Employment is considered to be an important variable
driving economic growth (Nawaz, Azam & Bhatti, 2019). High participation
in economic activities contributes to the improvement of the living standards
of the poor. Pakistan is the fifth most populous country in the world and has
the ninth largest working population. According to a report by the National
Institute for Population Research (NIPS), Pakistan's population growth rate
is 1.80%, reaching 215.25 million people in 2020.
Population density is 270 people/yearkm2. 59% of Pakistan's population is
between the ages of 15 and 59 and 27% of the population is between the
ages of 15 and 29. It is also reported that 61% of the Pakistani population is
in the 15-444-64 age group (Pakistan Economic Survey, 2020-2021).
According to the Bureau of Statistics of Pakistan (2020), Pakistan's
working-class population before COVID-19 was, 35 percent, or 55.75
million.
Due to COVID-19 and other external factors, this ratio dropped to 35.04
million, mainly due to the order to close and suspend business activities in
Pakistan. The situation has improved since July 2020, when Statistics show
that the working class has resumed economic activity. These 4,444 people
total 52.56 million people, or 33% of the current workforce. Performance of
This industry is affected by the widespread coming about within the
misfortune of pay as well as employments.
The foremost powerless segments influenced by the widespread were
transportation, fabricating, discount & retail, development and
communication. Agreeing to the Financial Study of Pakistan (2020-2021),
nearly 80 percent labor has misplaced their work and are incapable to
discover work in the development division. The same situation was
confronted by the fabricating segment, announcing 72 percent of
labor/workers lost or couldn't discover a work, this comes about within the
drop of the acquiring control of an person.
A comparative circumstance had won in different other divisions like
transportation,retail, discount and capacity businesses, appearing a 63
percent to 67 percent of labor/workers have fizzled to discover a work due
to the widespread in Pakistan (Hao, Shah, Nawaz, Nawazc, & Noman,
2020). Agreeing to the ILO (2021) gauges, the full unemployment rate of
Pakistan amid the year 2020 was 4.65 percent (as a percent of the whole
labor drive).

Table 1 appears the execution of different factors, inspected supporting the

display consider.
The measurable information of the rate of expansion appeared that it was
2.45 percent amid the year 2018, later it has been expanded to 8.62 percent
and 10.1 percent amid the a long time 2019 and 2020, individually. The
populace development rate appears a decrease from 2.06 percent to 1.97
percent, amid the period from 2018 to 2020. The outside coordinate venture
was 0.79 percent of GDP amid the year 2019 and 0.67 of GDP amid the year
2020.
The final column appears the GDP growth rates in Pakistan. The GDP
development rate was higher amid the year 2018 showing 5.83 percent,
afterward it is appearing a negative figure. i.e., -0.93 percent amid the year
2020, individually.
Table 1
Performance of Macro-Economic Variables in Pakistan

Inflation Population Foreign GDP

Rate Rate Direct Growth
Years (%) (%) Investment Rate
(% of (%)
GDP)
2010 10.85 2.20 1.14 1.60
2011 19.64 2.16 0.62 2.74
2012 5.96 2.13 0.38 3.50
2013 6.96 2.10 0.57 4.39
2014 7.41 2.09 0.77 4.67
2015 4.11 2.09 0.61 4.73
2016 0.40 2.08 0.92 5.52
2017 4.01 2.07 0.81 5.55
2018 2.45 2.06 0.55 5.83
2019 8.62 2.03 0.79 0.98
2020 10.1 1.97 0.67 -0.93
Source: World Bank database; Government of Pakistan, Economic Survey (various sources)
Pakistan is a developing country, and at the same time faces a multitude of
problems, such as poverty. unemployment, inflation, unequal income
distribution, malnutrition, and many other problems (Haq, Nawaz, Mahtab,
and Cheema, 2012). Greater participation of the labor force in economic
activities shows the prosperity of the economy, reflected in the improved
GDP growth rate. It has a great influence on the human capital of the
economy and improves the welfare of individuals and their households.
Many studies have studied unemployment trends and characteristics in
Pakistan. However, this study focuses on the period between 1974 and 2020.

In 2020, the whole world suffers from a pandemicCOVID-19 feminine. It

negatively affects the social, economic, and spiritual well-being of all
sectors of society. from developed and developing countries. Lockdowns,
intercity travel bans, and business disruptions have increased unemployment
levels in developing countries. countries like Pakistan. The main objective
of this study is to investigate the effects of the high unemployment rate in
Pakistan.
Various explanatory variables such as population growth rate(PGR),
inflation rate (INF), and foreign direct investment (FDI) are also examined
for the study. their impact on GDP growth in Pakistan. This section is
followed by a review of the literature. Section 3 presents the data and
methodology, followed by the results and interpretations Results will be
available in section 4. Section 5 presents conclusions and policy
recommendations based on the findings of this study.

2. Literature Review
Okun (1962) contended a negative association lies among the
unemployment and GDP growth rate of a country. Akinboyo (1987) stated
that unemployment is a crucial issue to achieve economic growth.
Khushnood, Rizwan, Memon, Tulliani, and Ferro (2014) studied the
inflation and economic growth effect on unemployment in Pakistan. For
estimation purposes, the authors used the Ordinary Least Squares (OLS)
method by using annual data from the period 2000 to
2012. The empirical result of the study showed that gross domestic product
(economic growth) had a positive relationship with unemployment.
Moreover, inflation had a negative relationship with unemployment.
Cheema and Atta (2014) collected time series data during the period
from1973 to 2010 in Pakistan. the authors examined the factors affecting
unemployment and applied the (ARDL) technique for empirical
investigation.

The finding of the study showed that unemployment had a

positive and significant effect on the output gap economic uncertainty and
productivity. while unemployment had a negative relationship with fixed
investment and trade openness (Shafiq, Hua, Bhatti, & Gillani, 2021). The
results of the study suggest that government should encourage trade and
private investment in the economy.

Aqil, Qureshi, Ahmed, and Qadeer (2014) collected the data during the
period 1983- 2010 in Pakistan. By employing the Ordinary least Squares
(OLS) method for the econometric analysis. The various factors
underpinning the present study are GDP, inflation, foreign direct investment,
population growth and unemployment rate. The findings of the study have
revealed that economic growth (GDP) and inflation have no significant
impact on unemployment. Moreover, it is also concluded that population
and foreign direct investment had a significant and negative
impact on unemployment in Pakistan.

Investigating the relationship between economic growth and unemployment,

Abbas (2014) collected data during the period 1990 to 2006. the authors
have employed the Auto-regressive Distributed Lag (ARDL) method for the
empirical findings. The results of the study conclude that there is no
association between economic growth and unemployment in the short
run. However, in the long run, a significant negative relationship is present
between unemployment and economic growth in Pakistan. The study also
concludes that the estimates of short-run parameters are insignificant. The
results of the study suggest that different policy measures should be adopted
to reduce the unemployment level in Pakistan.

While studying the relationship between inflation, unemployment and

economic growth in Nigeria, Ademola and Badiru (2016) collected annual
data during the year from 1981 to 2014. The authors have employed the
Ordinary Least Squares (OLS) method for empirical results. Thefindings of
the study show that RGDP, unemployment, and inflation have a long-term
relationship with each other. The findings from the study conclude that
unemployment and inflation are positively associated with economic growth.
Nigeria's RGDP has been increased due to oil revenue, which employs a
small number of highly skilled workers, and the price of crude oil output is
determined externally, which may not respond as expected to the country's
output growth.

Seth, John, and Dalhatu (2018) collected time-series data to examine the
impact of unemployment on economic growth in Nigeria. The authors
consider the period from 1986 to 2015, for empirical estimation. The
findings from the study have revealed that in the long-run no significant
relationship is present between unemployment and economic growth.

Unemployment had a positive and significant impact on economic growth

(Bhatti & Fazal, 2020). The informal sector in Nigeria is playing a key role
in generating economic growth. The Error Correction Term (ECT) presents
a speed of adjustment, which shows that 65.5 percent exists between the
short-run disequilibrium and long-term equilibrium.

Kukaj (2018) collected data during the year 2001-2015 to investigate the
relationship between unemployment economic growth in Western Balkans.
For estimation purposes, the author applied for STATA 12 program and
took unemployment and economic growth as variables.The finding showed
that there exists a trade-off between unemployment and economic growth.

The study focused on the dependent variable as GDP-growth and

independent variables are a foreign direct investment, unemployment, and
remittances. The prevalence of unemployment in the western Balkans Needs
attention and its relationship with economic growth is analyzed under
the present study.
Using the STATA12 the authors have conducted various empirical
investigations by employing the Effective Effect Model, Random Effects
methods in the study. The finding from the results concludes that a trade-off
is present between unemployment and economic growth in Western Balkan
economies (Ahmad, Shafiq, & Gillani, 2019; Yang & Shafiq, 2020).

Karikari-Apau and Abeti (2019) studied the impact of unemployment on

economic growth in China. For this purpose, the authors used time-series
data during the year from 1991 to 2018 and applied Autoregressive
Distributed Lag (ARDL) model for the econometric analysis of the
study. The result of the study concludes that a negative relationship exists
between unemployment and economic growth in the long run and short run.
It was also concluded from the results of the Granger causality test that, both
unemployment and economic growth do not affect each other in China.

Khalid, Akalpler, Khan, and Shah (2021) collected the annual data
Information that's time-variant is known as time-series information. Time
arrangement information is valuable to anticipate future values by utilizing
past information or data. The auxiliary information is collected amid the
year from 1974-2020, collected from World Advancement Markers (WDI)
and Financial Overview of Pakistan (2020-21; different issues). The
essential objective of the ponder was to examine the affect of unemployment
on financial development. For this reason, different factors are inspected in
this think about.

To study the association between unemployment, inflation, unemployment

and economic growth in South Africa. This study was based on annual data
from 1980 to examine the cointegration between the variables under
consideration in the present study. The study showed that there had a
negative relationship between inflation and economic growth and a negative
association between exchange rate and unemployment. It was also
concluded that in the long-run negative significant response of the exchange
rate to the unemployment rate is present, however, in the long run, the
response of real GDP to the unemployment rate was positive and significant
in South Africa.

Causes of Unemployment:

Population Growth and Labor Force Dynamics: Pakistan's population

growth has outpaced economic development and job creation, leading to a
surge in the labor force. The resulting oversupply of labor exacerbates
unemployment rates (Awan & Hussain, 2017).
Educational Mismatch: There is a mismatch between the skills acquired
through education and those demanded by the labor market. Graduates often
lack the necessary skills to secure gainful employment, leading to
underemployment or unemployment (Raza & Sheikh, 2017).
Structural Challenges: Pakistan's economy is characterized by a
preponderance of the informal sector and an imbalance between its
agricultural and industrial sectors. The lack of diversification limits job
creation and the absorption of labor into productive sectors (Naseer et al.,
2020).
Economic and Political Instability: Frequent economic crises, inflation,
and political instability discourage investment and business expansion.
Uncertainty hinders job creation and deters foreign investors, perpetuating
unemployment (Zaman et al., 2020).

Effects of Unemployment:

Poverty and Inequality: High unemployment rates are often associated

with increased poverty and income inequality. Households with unemployed
individuals struggle to meet basic needs, leading to social and economic
disparities (Khan et al., 2018).
Social Unrest and Crime: Unemployment can lead to social unrest, as
jobless individuals may engage in protests and demonstrations to demand
better opportunities. Additionally, unemployment is linked to higher crime
rates, as some individuals resort to illegal activities to support themselves
(Ghulam & Khattak, 2020).
Health Consequences: Prolonged unemployment can lead to mental health
issues such as depression, anxiety, and stress. Lack of financial security and
access to healthcare exacerbates these problems (Javed et al., 2019).
Brain Drain: Skilled individuals facing limited job prospects may seek
opportunities abroad, leading to a "brain drain" phenomenon where the
country loses its human capital and intellectual resources (Jamal & Tasneem,
2019).

Impact on the Economy:

Reduced Economic Growth: High unemployment rates hinder economic

growth by underutilizing the country's labor force potential. Unemployed
individuals represent untapped productivity and consumption capacity (Irfan
et al., 2017).
Government Resource Allocation: Governments often have to allocate
resources for unemployment benefits and social welfare programs, diverting
funds from productive investments. This strains public finances and affects
infrastructure development (Amin & Islam, 2020).

Human Capital Erosion: Prolonged unemployment leads to skill erosion

and reduced work experience, resulting in a decline in human capital. This
can hamper the country's ability to compete in the global economy (Farooq
et al., 2018).
Low Tax Revenue: High unemployment rates reduce the overall taxable
income base, leading to lower tax revenue for the government. This can
impact public service provision and infrastructure development (Hussain et
al., 2019).
3. Data and Methodology
Information that's time-variant is known as time-series information. Time
arrangement information is valuable to anticipate future values by utilizing
past information or data.The auxiliary information is collected amid the year
from 1974-2020, collected from World Advancement Markers (WDI) and
Financial Overview of Pakistan (2020-21; different issues).

The essential objective of the ponder was to examine the affect of

unemployment on financial development.For this reason, different factors
are inspected in this think about. i.e., GDP growth rate (RGDP), (FDI) as a
percent of GDP, inflation rate (INF), population growth rate (PGR),
unemployment rate (UE) and government expenditures as a percent of GDP
(GEXP). GDP growth rate is the dependent variable as a proxy for economic
growth and the rest of all variables are independent variables, as presented
in the econometric model below.
Yi= β1+ β2Xi + ui (1)

RGDP = α + β1 ( PGR) + β2 (INF) + β3 (FDI) + β4 (GEXP) + β5 (UE) + µt

(2)

α = intercept
β1 to β2 = co-efficient of independent variables
µt = error term
t = Time

4. Result and Interpretation

4.1 Descriptive Statistics of Data
Table 2 presents the graphic insights of the information that clarifies the
factual prosperity of the observational show. The observational
demonstration is measured in factual terms and gives a nitty-gritty account
of the quality of the show.The cruel esteem of the RGDP development rate
is 4.82755 and the standard deviation is 2.029848. Skewness is positive and
the kurtosis esteem is more prominent than 2 but less than 3 so it speaks to
Mesokurtic. Jarque-Bera test is utilized to check the ordinariness, so the
GDP development rate is regularly disseminated. The cruel esteem of the
unemployment rate is 4.0848 and the standard deviation is 2.2982.
The unemployment rate is emphatically skewed and kurtosis is Platykurtic.

Unemployment is ordinarily conveyed. The cruel esteem and standard

deviation values of the rate of expansion are 9.679 and 6.694. It is
emphatically skewed and regularly conveyed, and it is additionally called
Leptokurtic.
The cruel esteem of FDI is 0.802 and its standard deviation esteem is 0.7810.
It is emphatically skewed and Leptokurtic. The populace development rate
is adversely skewed and Platykurtic, as ordinarily disseminated.
The cruel esteem is 11.104 and the standard deviation is 1.9863. It is
emphatically skewed and has Leptokurtic. It is normally distributed.
Table 2
Descriptive Statistics of Data
GRDP UE INF FDI PGR GEXP
Mean 4.827552 4.084891 9.679069 0.802419 2.680828 11.10499
Medium 4.839699 4.065000 8.603925 0.597474 2.777067 10.98740
Maximum 10.21570 7.830000 38.51199 3.668323 3.363941 16.78941
Minimum 0.988829 0.400000 0.400236 0.044948 2.029215 7.346709
Std. Dev. 2.029848 2.298230 6.694207 0.781062 0.442194 1.986370
Skewness 0.199379 0.054221 2.205998 2.265181 - 0.505893
0.039039
Kurtosis 2.879402 1.921234 9.335777 8.080219 1.590117 3.782737
Jarque-Bera 0.332642 2.253032 114.2481 88.80454 3.821575 3.136408
Probability 0.846774 0.324161 0.000000 0.000000 0.147964 0.208419
Sum 222.0674 187.9050 445.2372 36.91125 123.3818 510.8296
Sum Sq.Dev. 185.4127 237.6837 2016.558 27.45263 8.799094 177.5550
Observations 46 46 46 46 46 46

Source: Author’s calculation; Eviews10

4.2 Unit Root Test

Table 3 presents the unit root test estimation and found that GDP, inflation,
population growth rate and foreign direct investment are statistically
significant at the level. Unemployment and general equilibrium of
expenditure are statistically significant at the first difference.
Table 3
Unit Root Test
Variables Level First Difference Result
Intercept/Trend Intercept/Trend
RGDP -4.354 ……. I(0)
(0.0011)
UE ……… -6.203 I(1)
(0.000)
INF -6.011 ……. I(0)
(0.0000)
PGR -4.1048 ……. I(0)
(0.0125)
FDI I(0)
-2.9692 …….
(0.0457)
GEXP ….…….. -5.4341 I(1)
(0.0000)
Source: Author’s calculation; Eviews10

4.3 Bound Test Results

Table 4 presents the bound test results of the data.ARDL bounds testing was
developed by Pesaran, Shin, and Smith (2001) to test the existence of the
long-run relation between the variables. Table 4 indicates the value of the
estimated F-statistic (17.815), which is above the upper critical value of 5%.
In short, the determinants of RGDP move together in the long run.
Table 4
Bound Test Results
F-Statistic 17.815

Critical values bound

Significance I0 bounds I1 bounds
(lower bounds) (upper bounds)

10% 2.08 3
5% 2.39 3.38
1% 3.06 4.15

Source: Author’s calculation; Eviews10

 Table 5
Long-Run Estimation
Variable Cofficient Std.Error t- Statistic Prob.
UE -0.599 0.127 -4.718 0.0001
INF -0.394 0.061 -6.383 0.0000
FDI -0.816 0.404 -2.021 0.0568
PGR 3.157 O.496 6.398 0.0000
GEXP -0.718 0.118 -6.074 0.0000
C 10.908 2.041 5.343 0.0000
Source: Author’s calculation; Eviews10

Table 5 shows the value of the unemployment rate coefficient showing

negative valuesrelationship with GDP growth rate and is statistically
significant. The value of the coefficient unemployment rate is -0.59 and it is
statistically significant. This shows that an increase of 1 percent
unemployment rate leads to a decrease in GDP growth rate of 0.59%. The
result of The study is similar to the findings of Makaringe and Khobai
(2018). Negative causes In Pakistan, the relationship may be that
unemployment negatively affects consumer income,decrease in purchasing
power, reduce employee determination, and reduce production in
the country.
Table 6
Diagnostic Test
Diagnostic Test

Test name Test Statistics P- Values

R-Squared 0.8652 ….……….
F-Statistic(overall significance of model) 6.1129 0.000076
Durbin-Watson stat 1.86 ….……….
Adjusted R Squared 0.723 ….……….

Source: Author’s calculation; Eviews10

The inflation rate has a negative relationship with the GDP growth rate and
statistical significance. The inflation coefficient is -0.39, indicating a 1%
increase Inflation led to a decrease in GDP growth rate of -0.39%.
These results support the conclusion by Shahid (2014) between inflation and
economic growth. The reason is inflation increases, people's purchasing
power decreases, leading to a decrease in the growth rate.
The coefficient of foreign direct investment is -0.81, indicating a 1%
increase in foreign direct investment.Investment leads to a decrease in
economic growth rate -0.81%. This result is similar the findings of Saqib,
Masnoon, and Rafique (2013), show that in developing countries such as
Pakistan ,foreign investors/companies or countries interfere in economic
policy, causing harm
affects domestic investment (Kamran, Qaisar, Sultana, Nawaz, and Ahmad,
2020). The Government spending hurts GDP and is statistically significant.
The value of the public expenditure coefficient is -0.71. These results are
similar to the effects of Mehmood and Sadiq (2010). When the government
spends more money on inefficient activities for these purposes, it will
seriously affect GDP (Gillani, Shafiq, and Ahmad, 2019). Overall, the
increase in Public spending leads to a budget deficit (Fazal, Bhatti, and
Ahmad, 2019).
Table 6 shows that in the estimation equation, the R-squared value is (0 to 1)
or close to 1.Then this makes it clear that the model is ideal. If the estimates
of R squared are not in this range, then this implies that a problem exists in
the model. In the table above, R Square is 0.86, which means The 86%
change in GDP (economic growth) is due to the change in all dependent
variables. The Durbin Watson's estimate is 1.86, which means that there is
no correlation between variable.

4.4 ARDL ECM result

The error correction representation of the ARDL technique is:

∆RGDPt = β0 + ∑ k j=1 ∂1 j∆GDPt−j + ∑ k j=1 β1 j∆UEt−j + ∑ k j=1 β2

j∆PGRt−j + ∑ k j=1 β3 j∆INFt−j + ∑ k j=1 β4 j∆FDIt−j + ∑ k j=1 β5
j∆GEXPt−j+ πECMt−1 + μt
(3)

RGDPt = β0 + ∑ k j=1 ∂1 j GDPt−j + ∑ k j=1 β1 jUEt−j + ∑ k j=1 β2 j

PGRt−j + ∑ k j=1 β3 j INFt−j + ∑ k j=1 β4 jFDIt−j + ∑ k j=1 β5 j GEXPt−j
+ ∈t (4)

Table 7 shows the short-run relation between variables. In the short-run,

Error correction the value must be negative and statistically significant.
In the above rough statement, the ECM value is negative 1.5477 and also
statistically significant 0 .000076
Table 7
ARDL ECM Results
Dependent variable: RGDP
Independent Coefficients t-values
Variables
UE 0.089 0.7241 (0.4774)
INF -0.0605 -2.3298 (0.030)
FDI 0.5062 1.1482 (0.2644)
PGR 42.561 2.3052 (0.032)
GEXP -0.364 -1.8268 (0.082)
ECM(-1) -1.5477 -12.732(0.0000)
Source: Author’s calculation; Eviews10

Table 8 shows the results of the diagnostic test. These tests tell us that the
model is stable ; there is no model autocorrelation problem and variable
variance problem. These results show that our model is stable.
Table 8
Diagnostic Test
Breusch-Godfrey Serial Correlation LM Test
0.23610
F-statistic 1 Prob. F(2,18) 0.7921

Heteroskedasticity Test: Breusch-Pagan-Godfrey

0.927921
F-statistic 1 Prob. F(21,20) 0.5678

5. Conclusion and Recommendations

In this study, we examine the impact of unemployment on GDP growth. For
this purpose, time series data were collected from the WDI database for the
period 1974-2019. The GDP growth rate was used as the dependent
variable in this study. Population growth rate (PGR), inflation rate (INF),
foreign direct investment (FDI), government spending (GEXP), and
unemployment rate (EU) are used as variables. autonomous number.
In the long run, the unemployment rate hurts economic growth (GDP)
and is statistically significant. As unemployment increases in the economy,
real GDP and per capita income decrease, leading to low standards of living.
At the same time, it stimulates depression, suffering, and crime in the
economy.
The inflation rate hurts GDP and is statistically significant. When inflation
is high, the purchasing power of the masses will decrease. Population
growth has a positive and statistically significant impact on economic
growth.
In the short-term estimate, the ECM value is negative -1.5477 and
statistically significant. 4244 In the short-run estimate, foreign direct
investment and population growth have a positive relationship 4244 with
GDP growth. Inflation shows a negative relationship with this study. In the
short term, values change over time. The poor economic performance of
macroeconomic variables are responsible for the high rates of inflation and
unemployment in Pakistan. The findings of the study suggest that the
government should shoulder various development expenditures to create
employment opportunities for people living in rural areas and
areas of Pakistan.

The government should design appropriate fiscal and monetary policies to

combat inflationary pressures in the economy.unemployment in Pakistan is
a multifaceted issue rooted in population growth, educational mismatches,
structural challenges, economic and political instability. Its effects permeate
society, contributing to poverty, social unrest, and health problems.
Moreover, the broader economic implications hinder growth, burden
government resources, and erode human capital. Addressing this issue
requires comprehensive policy measures that promote job creation, skill
development, and sustainable economic growth.

5.1 Population Control

The growing population in Pakistan is the problem that is getting worse day
by day. According to a research, the population of Pakistan will become 245
million until the end of 2030. There is no way a country can provide
employment to that many people. Serious stands are required to control this
growing population. Keeping aside any other problem, this population will
make everyone’s life miserable if not controlled.

5.2 Development of education System.

The education in Pakistan is one of the major issues the development of a
system to create skills and degrees that can help them to get a job.
There are many institutions in Pakistan providing degrees without the
knowledge of the jobs available in the market and the requirement of those
jobs. In the ruler areas of Pakistan to trend to get education to get a job is
very low. Again, serious steps are required to improve our education system.

5.3 More assistance to self-employment.

The trend to start new business should promoted by the government and the
entry of new business in the market should be made easy for everyone. The
more new businesses enter the market the greater jobs will be in the market.
The easiest way is, to provide easy term loans, the ease in taxes and
providing awareness to the public.

5.4 Development of the industry & new Businesses

Industries are the jobs makers for the economy. The only way to progress in
this fast moving world is to deploy all your resources and create products
not only for your own use but for the export as well. Some of the most
powerful economies of the world like China, Japan, and UK have the
industrial chain that is continuously creating products for the whole world.

They are earning tons of foreign trade money by the export and have lowest
rate of unemployment. Their economy is growing amazingly and people are
living a happy life. On the other hand, in Pakistan industry is not working
properly, agriculture is not producing enough for our own use; the
businesses cannot produce in such economy. The new projects and industry
is the need if Pakistan want to solve unemployment.

5.5 Reducing retirement age

The age of retirement is 60 in Pakistan. If reduced to 45 to 50 there will be
employees that are more productive and more employed youth. It will
benefit everyone the old people in most of the organization are a liability. It
is not easy to understand and work in the rapidly changing environment.

5.6 Ensuring political stability

The political un-stability and strikes every month is harming the economy
more. Karachi as a hub of business in Pakistan is mostly under political
pressure. The politics should not interfere in the matters of business and let
the industrial sector grow. The stock market in manipulated by some big
hands in Pakistan the only reason people are afraid to invest in stock
exchange is because of that. If everything is fair people will invest their
money in the economy and the economy will grow and that will lead to the
less unemployment rate.
5.7 New employment programs
The Rozgar programs and the programs to provide skills to the youth to get
the jobs is one of the motto of most of the government of past 20 years.
These programs help the unemployed to get a job by the help of the
government. The need is to create more and more programs like that so we
can get rid of this problem that is effecting our youth badly.
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