Systematic Literature Review: Unemployment Rate as factors

affecting the Gross Domestic Product, Inflation Rate, and

Population
Pauline R. Dela Cruz, Marmelo V. Abante, PhD, Florinda G. Vigonte, Ph.D.
World Citi Colleges, Quezon City, Philippines
+639055024814
Email Address: paulardc1998@gmail.com, docmelo888@gmail.com , florgarcia3207@gmail.com
Abstract
Unemployment is one idea that explains how economies' production structures, sectoral developments, and
regional and national developments. Covid-19 affects the unemployment rate, GDP, Inflation Rate, and
Population. This is a systematic literature review, and the researcher used PRISMA in determining the
literature used in this study. Out of 101 related topics in google scholar, only 6 were selected in this study.
The COVID-19 health crisis is a great shock that is making a change in the lives and livelihoods of
individuals around the globe. Apparently, and unfortunately, the pandemic reversed some of these gains. It
wiped out 1.7 million wages and salary jobs in just 12 months until January 2021. The pandemic caused
and created long-lasting effects on employment. Thus, it created a big impact on the economy. A
phenomenon is known as hysteresis employment. Moreover, three transmission channels of the pandemic
on modern employment have been listed: A higher number of job seekers-like those who lost jobs, dropouts
from school, and new labor markets entrants that remain unemployed; next is the large re-allocation of job
sectors; and companies that are modifying their businesses that rely on the uses of technology. These will
exacerbate further the skill mismatch in the labor market. The methodology used a systematic literature
review, wherein inclusion and exclusion criteria are set to narrow the research to studies for comprehensive
analysis. The inclusion criteria were: 1) They were published between 2017 and 2022) they were published
as an academic journal, 3) they were written in the English language, 4) they were original or empirical
studies, and 5) the studies are focused on the analysis on how the Gross Domestic Product, Inflation rate,
and population affects the Unemployment rate. The exclusion criteria were as follows: 1) Excluding the
duplicated studies. 2) Excluding non-English studies. 3) Excluding studies that did not focus on the
unemployment rate. The literature search was limited to 2017-2022. Hence, J D Urrutia et al. (2017)
demonstrate that only the inflation rate, out of the five independent variables, has no significant link with
the dependent variable, with a p-value of 0.178, which is more than the level of significance of 0.01 if the
null hypothesis is accepted there is no significant relationship between the dependent and independent
variable. Meanwhile, GDP shows a negative connection with the Unemployment Rate but a significant
linear association with the unemployment rate based on their Pearson coefficient of determination (J D
Urrutia et al., 2017). Moreover, the population shows a negative connection with the Unemployment Rate
but a significant linear association with the unemployment rate based on their Pearson coefficient of
determination (J D Urrutia et al., 2017). SARIMA (6, 1, 5) x (0, 1, 1) 4 is the formulated model for
estimating and forecasting the unemployment rate in the Philippines. Forecasted values are within six to
eight percent of actual values, and they are shown to be 72 percent accurate. Important determinants of the
unemployment rate, Labor Force Rate, and Population are discovered. In addition, the dependent variable
is Granger-caused by population, GDP, and GNI. These factors can influence the unemployment rate. Any
change in those factors can cause the unemployment rate to rise or fall (J D Urrutia et al., 2017). When
unemployment falls, disposable income grows, demand rises, and prices rise.

Keywords: Unemployment rate, Gross Domestic Product, Population, and Inflation rate

Electronic copy available at: https://ssrn.com/abstract=4121167

Introduction
Employment and unemployment are ideas that explain how economies' production structures,
sectoral developments, regional and national developments, and active and inactive human resources are
affected by various circumstances. These themes are among the most pressing issues confronting all
countries, past and present. As a result, both developed and emerging countries face major challenges in
employment and unemployment rates.
This study is a literature review regarding the unemployment rate and its relationship to the Gross
Domestic Product (GDP), Inflation Rate, and Population. The unemployment rate is derived by dividing
the number of unemployed people by the total number of people in the labor force. GDP represents the
monetary value of a country's final goods and services—those purchased by the end-user—produced over
a specific period. It counts all the products produced within a country's borders (Callen, 2020). is used to
calculate and track the wealth of a country through time. The figure covers the country's gross domestic
product (GDP) and income from foreign sources (Investopedia,2022). The rate at which prices rise over
time is known as inflation. Inflation is usually defined as a wide measure of price increases or increases in
the cost of living in a country (Ehiogu et al., 2018). A population is a distinct group of people, whether a
country or a collection of people who share a common attribute (Investopedia, 2022). The importance of
this study is that it will help the government and future researchers know the factors that increase the
unemployment rate in a country.
The COVID-19 health crisis is an extraordinary shock that is making a change in the lives and
livelihoods of individuals around the globe. Its effects are likely to broaden beyond the short term into the
medium and long term. Sharp declines have matched the severe health impacts on economic activity and
upheavals in labor markets. Preliminary evidence shows that the COVID-19 crisis is significantly more
intense than the 2008 Global Financial Crisis. During the pandemic labor force among the population of
age 15 years and over was in the labor force as reported by the Labor Force Survey (LFS). It was estimated
that there are 41.1 million are in the labor force. Hence, this placed the labor force participation rate (LFPR)
at 55.7 %, which indicates that three in every five of the population aged 15 years old and over were either
employed or unemployed. It was said that this was the lowest in the history of the Philippines labor market
since the COVID-19 pandemic started. K. Bird, C. Lozano, and T. Mendoza wrote in Asian Development
Blog that before the COVID-ap pandemic, the Philippines was experiencing its longest-ever economic and
job expansion where there was a remarkable growth in wage and salary, growth from 2015 to 2019,
annually, an average of 4.6%. Apparently, and unfortunately, the pandemic reversed some of these gains.
It wiped out 1.7 million wages and salary jobs in just 12 months until January 2021. The pandemic caused
and created long-lasting effects on employment. Thus, it created a large shock in the economy. A
phenomenon is known as hysteresis employment. Moreover, three transmission channels of the pandemic
on modern employment have been listed: A higher number of job seekers-like those who lost jobs, dropouts
from school, and new labor markets entrants that remain unemployed; next is the large re-allocation of job
sectors; and companies that are modifying their businesses that rely on the uses of technology. These will
exacerbate further the skill mismatch in the labor market.

Electronic copy available at: https://ssrn.com/abstract=4121167

 Figure 1: Graph of the Unemployment rate
(https://www.macrotrends.net/countries/PHL/philippines/unemployment-rate)
The researchers intend to answer the following question:
1. What is the relationship between the unemployment rate and the following factors
a. Inflation Rate
b. Gross Domestic Product
c. Population
2. What are the methods used in forecasting the unemployment rate?

Methodology
For the systematic literature review, inclusion and exclusion criteria are set to narrow the research
to studies for comprehensive analysis. The inclusion criteria were: 1) They were published between 2017
and 2022) they were published as an academic journal, 3) they were written in the English language, 4)
they were original or empirical studies, and 5) the studies are focused on the analysis on how the Gross
Domestic Product, Inflation rate, and population affects the Unemployment rate. The exclusion criteria
were as follows: 1) Excluding the duplicated studies. 2) Excluding non-English studies. 3) Excluding
studies that did not focus on the unemployment rate. The literature search was limited to 2017-2022.
Furthermore, the systematic review is limited to publications in English due to a lack of facilities for
translation. Finally, studies that did not consider the following factors such as GDP,Inflation rate, and/or
Population, as a factor in the unemployment rate were excluded, such as employment mismatch studies, as
these studies do not answer the research questions. All the previous criteria were used to improve the quality
of our systematic literature review.

Electronic copy available at: https://ssrn.com/abstract=4121167

 Figure 2: PRISMA

Results and Discussion

Inflation Rate
J D Urrutia et al. (2017) demonstrate that only the inflation rate, out of the five independent
variables, has no significant link with the dependent variable, with a p-value of 0.178, which is more than
the level of significance of 0.01 if the null hypothesis is accepted there is no significant relationship between
the dependent and independent variable (refer to figure 2). Urrutia research is incompatible with Islam's
(2018) conclusion that there is a positive correlation between inflation and unemployment, and it presents
a unique dilemma. When unemployment falls, disposable income grows, demand rises, and prices rise.
When unemployment is high, however, demand declines, and, as a result, prices fall. Because stagflation
has hampered economic progress in the Philippines from 1950 to 2017, the currency should be freed from
the gold standard and allowed to float. In line with Islam, Prabhakar (2020) states that unemployment has
a significant impact on inflation, while unemployment has a minor impact on real GDP.

Electronic copy available at: https://ssrn.com/abstract=4121167

 Figure 3: Trend between Inflation and Unemployment in India(Prabhakar, 2020)

Gross Domestic Product

GDP shows a negative connection with the Unemployment Rate but a significant linear association
with the unemployment rate based on their Pearson coefficient of determination (J D Urrutia et al., 2017).
A negative link between inflation rate and GDP, which is compatible with the Phillips curve, could be
attributable to real exchange rate movements, taxes, government expenditure, money growth, and oil price
fluctuations, among other things (Islam, 2018). Another research conducted in Malaysia revealed a causal
relationship between Malaysia's Gross Domestic Product and unemployment (Rahman, 2019). Prabhakar
(2020), on the other hand, states that unemployment does not influence real GDP.

Figure 4: Trend of Unemployment and Real GDP in India (Prabhakar, 2020)

Population
The population shows a negative connection with the Unemployment Rate but a significant linear
association with the unemployment rate based on their Pearson coefficient of determination (J D Urrutia et
al., 2017). Another research conducted in Malaysia revealed a causal relationship between Malaysia's
population and unemployment. It has been discovered that the population can be utilized to forecast the
country's unemployment situation (Rahman, 2019).

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 p-value
Labor Force Rate (x1) 0.1654
Population (x2) 0.0321
Inflation Rate (x3) 0.7539
GDP (x4) 0.0093
Table 1: Granger-causality (J D Urrutia et al, 2017).

Figure 5: Scatterplot diagram between the dependent and independent variables (J D Urrutia et al., 2017)

Methods Used in Forecasting the Unemployment Rate

SARIMA (6, 1, 5) x (0, 1, 1)4 is the formulated model for estimating and forecasting the
unemployment rate in the Philippines. Forecasted values are within six to eight percent of actual values,
and they are shown to be 72 percent accurate. Important determinants of the unemployment rate, Labor
Force Rate, and Population are discovered. In addition, the dependent variable is Granger-caused by
population, GDP, and GNI. These factors can influence the unemployment rate. Any change in those factors
can cause the unemployment rate to rise or fall (J D Urrutia et al., 2017).

Electronic copy available at: https://ssrn.com/abstract=4121167

Figure 6: Graph of the actual and forecasted values of the unemployment rate (J D Urrutia et al., 2017)

Misil and Tarepe (2018), on the other hand, used a Feed-forward Artificial Neural Network to
estimate the trend of the Philippine unemployment rate. They took into account potential economic
indicators such as population, labor force, GDP, GNI, inflation rate, education (Elementary Level Cohort
Survival Rate, High School Level Cohort Survival Rate, and Higher Education Graduates), and index values
of production of key manufacturing enterprises by the industry that affect unemployment. On the testing
set, the forecasting model generated in this study had an accuracy of 87.5 percent in predicting the trend.
This means that the model can be used to analyze and predict the behavior of unemployment rate dynamics.

Figure 7: Neural Structure Model (Misil and Tarepe, 2018)

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 According to Johansen's long-run co-integration test, Islam (2018) concluded that there is a long-
run relationship between the variables (refer to table 2). Except for GDP, all other variables are positively
connected with inflation in the Philippines throughout the period studied. According to economic theory,
the annual wage rate and GDP are positively and adversely correlated with the inflation rate. It's
comprehensible because as the yearly wage rate rises with inflation and the unemployment rate rises, GDP
falls. However, the essence of the Phillips curve is incompatible with the unemployment rate, which is
positively connected with inflation. According to the Phillips curve, the rate of inflation and unemployment
are inversely related. As a result, it is possible to conclude that the Phillips curve does not apply to the
Philippine economy from 1950 to 2017.

Hypothesized Trace 0.05 Eigen Hypothesized Max-Eigen Critical

No. of CE (s) Statistic Critical value No. of CE (s) Statistic Value
Value (0.05)
None * 80.036 47.856 0.478 None * 41.633 27.584
At most 1 * 38.404 29.797 0.300 At most 1 * 22.868 21.132
At most 2 * 15.536 15.495 0.211 At most 2 * 15.160 14.265
At most 3 0.376 3.841 0.006 At most 3 0.376 3.841
Table 2: Johansen Test For Co Integration (Islam, 2018)

In a study conducted by Dr. Vasa Prabhakar concluded in the study titled “Trade-off between
Inflation and Unemployment in the Short Run: A case of the Indian Economy” (2020), the results showed
that the unemployment coefficient is positive and statistically significant. Even though inflation is negative,
Unemployment and inflation are severe problems in every economy. The researcher used the Indian
economy as a case study to conduct several experiments to confirm the presence of a Phillips curve. The
test indicated that unemployment and inflation are inversely connected, proving the existence of the Phillips
curve in India, and demonstrating that inflation has a major impact on unemployment. As a result,
substantial institutional collaboration and links among ministries are required to deal with the country's
triplet macroeconomic variables of unemployment, inflation, and real GDP.
Conclusion
The COVID-19 health crisis is an extraordinary shock that is making a change in the lives and
livelihoods of individuals around the globe. Apparently, and unfortunately, the pandemic reversed some of
these gains. It wiped out 1.7 million wages and salary jobs in just 12 months until January 2021. The
pandemic caused and created long-lasting effects on employment. Due to that, the researcher intends to
understand if there is any relationship between GDP, Inflation rate, and Population to the Unemployment
rate. The researcher used a systematic review and concluded that: When unemployment falls, disposable
income grows, demand rises, and prices rise in response. Another research conducted in Malaysia revealed
a causal relationship between Malaysia's population and unemployment. P-value Labor Force Rate (x1)
0.1654 Population (x2) 0.0321 Inflation Rate (x3) 0.7539 GDP (x4) based on Granger-causality (J D Urrutia
et al, 2017). Misil and Tarepe (2018), on the other hand, used a Feed-forward Artificial Neural Network to
estimate the trend of the Philippine unemployment rate. On the testing set, the forecasting model generated
in this study had an accuracy of 87.5 percent in predicting the trend. This means that the model can be used
to analyze and predict the behavior of unemployment rate dynamics.

Electronic copy available at: https://ssrn.com/abstract=4121167

References:

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About the Authors

Pauline R. Dela Cruz is from Mabalacat City, Pampanga, Philippines 2010. A

graduate of B.S. Accountancy in Holy Angel University (2019). She is a
Certified Public Accountant and currently taking up - Master of Business
Administration at World Citi Colleges- Quezon City. She is concurrently an
Accounting Instructor at Mabalacat City College and an active member of the
Philippine Institute of Certified Public Accountant (PICPA).

Marmelo Villanueva Abante, EdD, PhD-IT, DBA (c)

World Citi Colleges Dean. Experienced school President, Vice President for
Academic Affairs, and with a demonstrated history of working in the education
management industry. Skilled in Programming, E-Learning, Database system,
Web, Customer Service, Strategic Planning, and quality assurance. Well-
known for writing books, serving on editorial boards, conducting research, and
delivering presentations

Florinda G. Vigonte is from Tambubong, San Rafael, Bulacan, Philippines

3008. She has a degree in Doctor of Philosophy in Educational Leadership and
Management with Specialization in Management Research at La Consolacion
University, Philippines; currently pursuing her second doctoral in Ph.D. -
Business Administration; she earned units in Online Distance Learning (ODL)
course at De La Salle University, Manila (2020); and an Instructor I at Bulacan
State University (BulSU), Malolos City, Bulacan, Philippines. She authored
different books in Jimczyville Publications and Jo-Deh Publishing. She is an
Associate Member of the National Research Council of the Philippines (NRCP);
a member of the Philippine Association of Researchers and Statistical Software
Users (PARSSU), and a Scopus author.

Electronic copy available at: https://ssrn.com/abstract=4121167