UNIVERSITI TEKNOLOGI MARA

UNEMPLOYMENT TRENDS AND

ECONOMIC INDICATORS: “AN
ANALYTICAL STUDY"

MUHAMMAD HAIKAL BIN MOHD

KHAIRI

MSc

January 2024
UNIVERSITI TEKNOLOGI MARA

UNEMPLOYMENT TRENDS AND

ECONOMIC INDICATORS: “AN
ANALYTICAL STUDY"

MUHAMMAD HAIKAL BIN MOHD KHAIRI

Thesis submitted in fulfillment

of the requirements for the degree of
Bachelor of Muamalat

Academy of Contemporary Islamic Studies

January 2024
 CONFIRMATION BY PANEL OF EXAMINERS

I certify that a Panel of Examiners has met on (DATE/MONTH/YEAR) to conduct the final
examination of Muhammad Haikal Bin Mohd Khairi in his Bachelor of Muamalat with
Honors thesis entitled Unemployment Trends And Economic Indicators: “An Analytical
Study" in accordance with Universiti Teknologi MARA Act 1976 (Akta 173). The Panel of
Examiner recommends that the student be awarded the relevant degree. The Panel of
Examiners was as follows:

Noor Aznaim Binti Abd Latib,

Lecturer
Academy of Contemporary Islamic Studies,
University Teknologi MARA
(Supervisor)

Muhammad Zuhaili Bin Saiman,

Lecturer
Academy of Contemporary Islamic Studies,
University Teknologi MARA
(Examiners)

ASSOCIATE PROF MADYA DR

AFANDI BIN MAT RANI
Dean
Academy of Contemporary Islamic
Studies,
University Teknologi MARA
Date: __________

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 ACKNOWLEDGEMENT

I express my gratitude and appreciation for the existence of Allah SWT, who freely bestowed
upon me his kindness and guidance, allowing me to successfully accomplish this assignment
while maintaining my physical well-being. I am grateful to Allah SWT, who is the essence of
compassion and kindness, for granting me the chance to successfully complete my study.
Devoid of His kind favour and guidance, I would not have acquired the strength, bravery, or
passion to successfully complete my studies within the designated timeframe. Completed
studies in the Muamalat Bachelor's Degree (Honours) programme at UiTM. I wish to convey
my gratitude to my supervisor, Mrs. Noor Aznaim Binti Abd Latib. The supervisor's patience
and lessons were helpful during the entire duration of the project. The invaluable support he
provided through positive remarks and insightful recommendations motivated and influenced
me to contemplate this subject.

I express my gratitude to my family for their assistance and for developing my writing skills.
I wish to convey my deepest appreciation to my beloved family for their consistent love,
appeals, support, and comfort. I would want to express my heartfelt appreciation to my
friends who made significant contributions in terms of their thoughts and perspectives and
collaborated diligently to successfully accomplish this project. Ultimately, I would like to
express my gratitude to all individuals who helped, irrespective of their separation from me.

ii
 AUTHOR’S DECLARATION

The work in this research academic paper was completed according to the rules set by
Universiti Teknologi MARA. Unless it states otherwise or is used as a reference, it is original
and my own work. This academic article has never been turned in to any university, academic
or not, for any degree or qualification.

Name of Student: Muhammad Haikal Bin Mohd Khairi

Student ID: 2020492404

Programme: Academic Contemporary Islamic Studies (ACIS)

Dissertation Title: Unemployment Trends And Economic Indicators: “An Analytical

Study"

ABSTRACTS

iii
This study investigates the relationship between unemployment trends and economic
indicators in Malaysia over a span of two decades. Utilizing a qualitative research
methodology and drawing on secondary data from reputable sources such as the World Bank
and government papers, the study employs a theoretical framework comprising six
independent variables (FDI, GDP, inflation, population growth, female population, and urban
population) and one dependent variable (unemployment) to empirically examine
unemployment in Malaysia. The findings reveal a negative relationship between
unemployment and real GDP, emphasizing the necessity of maintaining economic growth for
low unemployment, and highlight the effect of foreign direct investment (FDI) on lowering
the jobless rate. These insights are expected to guide the formulation of targeted interventions
to curtail unemployment and promote enduring economic development in Malaysia.

Keywords: Unemployment Trends, Economic Indicators, FDI, GDP, Population

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 TABLE OF CONTENTS

CONFIRMATION BY PANEL OF EXAMINERS i

ACKNOWLEDGEMENT ii
AUTHOR’S DECLARATION iii
ABSTRACTS iv
TABLE OF CONTENTS v
LIST OF TABLES vii
LIST OF FIGURES viii
LIST OF SYMBOLS/ ABBREVIATIONS ix
CHAPTER 1 1
1.1 Introduction 1
1.2 Background of Study 2
1.3 Problem Statement 3
1.4 Research Question 7
1.5 Research Objective 8
1.6 Scope of study 8
1.7 Significance of Study 9
1.7.1 Academia and Researchers 9
1.7.2 Industry 9
1.8 Conceptual Framework 10
1.9 Conclusion 10
CHAPTER 2 12
2.1 Introduction 12
2.2 Definition and Meaning of Unemployment 13
2.3 Factors of Unemployment 13
2.3.1 Covid-19 14
2.3.2 Lack of Technical Skills 16
2.3.3 Individual Attitude 17
2.3.4 Lack of Self-Preparation For Interviews 18
2.3.5 English Proficiency 19
2.4 Specific Economic Indicators That Exhibit The Strongest Correlation With Changes
In Unemployment Rates In Malaysia Over The Past Decade. 20
2.4.1 Gross Domestic Product (GDP) 20
2.4.2 Foreign Direct Investment (FDI) 21

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 2.4.3 Inflation 22
2.4.4 Population 23
2.4.5 Female Population 24
2.4.6 Urban Population 24
2.5 The Relationship Between Economic Growth, Foreign Direct Investment, And
Inflation Rate With Unemployment In Malaysia. 25
CHAPTER 3 27
3.1 Introduction 27
3.2 Research Design 28
3.3 Data Collection Method 28
3.3.1 Government Reports 29
3.3.2 Secondary Data 29
3.4 Dependent Variable and Independent Variables 30
3.5 Theoritical Framework 31
3.6 Econometric Model 32
3.7 Data Analysis Technique 33
3.7.1 Descriptive and Correlation Analysis 34
3.7.2 Ordinary Least Squares (OLS) Panel Regression 34
3.8 Conclusion 35
CHAPTER 4 36
4.1 Introduction 36
4.2 Descriptive Analysis 36
4.3 Correlation Analysis 37
4.4 Statistical Analysis 39
4.4.1 Coefficient of Determination Test (R-Square) 39
4.4.2 F-Statistical Test (Simultaneous Test) 40
4.4.3 T-Statistical Test (Partial Test) 41
4.5 Discussions 41
4.6 Conclusion 42
CHAPTER 5 44
5.1 Introduction 44
5.2 Recapitulate of The Research 44
5.3 Implication 46
5.4 Future Research 47
5.5 Limitations 49
5.6 Conclusion 50

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 REFERENCES 51
APPENDIX 58

vii
 LIST OF TABLES

No. of Tables Items Page

4.2 Descriptive Analysis 37
4.3 Correlation Analysis 39
4.4.1 Model Summary 39
4.4.2 F-Statistical Test Result 40
4.4.3 T-Statistical Test Result 41

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 LIST OF FIGURES

No. of Figures Items Page

1.3.1 Unemployment 1995-2021 3
1.3.2 Unemployment rate by selected age group, Malaysia, 1982 – 6
2020
1.3.3 Comparing GDP growth to retrenchment figures and the 6
unemployment rate
1.8 Conceptual Framework 10
3.5 Model of the Relationship between Independent Variables and 32
Dependent Variable

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 LIST OF SYMBOLS/ ABBREVIATIONS

Symbols/
Abbreviations Meaning of Symbols/ Abbreviations

GDP Gross Domestic Product

FDI Foreign Direct Investment
DOSM Department of Statistics Malaysia
COVID-19 Coronovirus Disease 2019
UNE Unemployment
IN Inflation
POP Population Growth
FP Female Population
UP Urban Population
SPSS Statistical Package for the Social Sciences
IBM International Business Machines Corporation

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 CHAPTER 1

INTRODUCTION

1.1 Introduction

Malaysia's economy is a patchwork made of strands of unity and variety. The nation
is defined by a peaceful fusion of cultures, nationalities, and traditions; its economic sectors
reflect this diversity. Malaysia's economic activities are as diverse and wide-ranging as its
cultural legacy, ranging from the fast-paced urban centres of Kuala Lumpur to the rural areas'
agricultural landscapes.

The complex dance of economic indicators in the global economy determines the fate
of countries. Malaysia, a country with a diverse population and a thriving economy, is at a
turning point in its growth. The intricate interactions between the GDP, FDI, unemployment,
and inflation rate are at the center of this developmental journey. In order to shed light on
Malaysia's economic landscape's future, this study aims to untangle the threads of connection
that weave through various economic determinants.

Economic development is a complex process that involves more than just statistics
and numbers. It is a story of development, difficulties, and resiliency. As a crucial indicator,
unemployment shows the status of the labor market as well as the larger socioeconomic
structure. At the same time, GDP reflects a country's economic strength, and FDI and
inflation rate add special layers to this complex story.

This study examines the economic mosaic that characterizes Malaysia via a
magnifying glass. The shift of Malaysia's economy from one based on agriculture to one that
is lively and diverse has defined the country's path. The fundamentals of Malaysia's economic
development are captured by the connections between GDP, FDI, Inflation, and
Unemployment.

Understanding these correlations entails more than just a cursory statistical

examination; it explores the core of Malaysia's intricate economy. Prosperity and low
unemployment rates are frequently correlated, indicating a country's capacity to utilize its
human resources. Globalization is injected via FDI, while economic stability is revealed by

1
the inflation rate. When these components are examined as a whole, the complexity of
Malaysia's economic processes becomes apparent.

1.2 Background of Study

The two most important factors in a nation's economic development are its labor force
participation rate and its unemployment rate. If a nation's unemployment rate is low, it is
considered to have sustained growth. On the other hand, a high unemployment rate suggests
that human resources are being wasted. One of the most important economic issues that still
has to be addressed in the job market is unemployment (N.Baharin, et al, 2012). Numerous
and intricate economic indicators contribute to unemployment. Short-term unemployment is a
common occurrence for many individuals, particularly those making career transitions or
entering the workforce after finishing school. Others may explain their extended
unemployment, which has lasted for several months, on their inability to obtain jobs.

In fact, a key metric for assessing the health of the economic cycle is the unemployment
rate. The percentage of the labor force that is actively looking for work is measured by the
unemployment rate (number of unemployed people / total labor force x 100%). There is a
clear correlation between output and expenditure levels and the quantity of job possibilities
available. A decline in the unemployment rate is indicative of a strengthening economy since
it allows enterprises to expand employment possibilities in response to higher output and
sales. On the other hand, a rise in the unemployment rate is a bad indicator for the economy
since it shows that businesses are performing worse, which makes them stop employing new
workers or fire existing ones because demand is declining. Moreover, low labor resource use
contributes to unemployment and shrinks the size of the economy. As per Okun's Law
(1970), a 1% rise in the unemployment rate corresponds to a 2% decrease in the GDP
potential of the nation.

The actions a nation takes to further its economic endeavors are referred to as economic
development (Basmar et al., 2021; Purba et al., 2021; Sahban, 2018). Economic development
requires the resolution of a range of issues and problems. The usage of labor and the rate of
unemployment are the primary issues that arise in a nation's economic development. This is
due to the fact that when the unemployment rate is low, a nation usually achieves progressive
and sustainable growth.

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 On the other hand, a high unemployment rate results in the waste of human resources.
Reducing unemployment is important, particularly in the labor market, as it poses a
significant economic challenge to a nation's progress. Short-term unemployment is typically
caused by the natural cycle of workers switching between jobs. This demonstrates clearly that
a nation's ability to expand economically is significantly impacted by its unemployment rate.
Because businesses can provide more jobs for the local population, lowering the
unemployment rate is good for the economy. This is how a business responds when sales and
output of goods and services increase.

Putong (2003) defines unemployment as the state in which a person does not hold a
job yet actively seeks one. Not only does unemployment exist in impoverished countries but
it also exists in prosperous countries. Unemployment, broadly speaking, refers to a state in
which members of the labor force are not employed but actively looking for work (Hasan &
Sun'an, 2020).

Meanwhile, according to Franita et al. (2019), unemployment is the state in which a

member of the labor force wishes to find employment but has not yet done so. It also takes a
long time to find work for those experiencing unemployment. The world's population has
suffered since the Global Financial Crisis as a result of sharp economic downturns, poor
economic conditions, and a sharp decline in employment prospects.

1.3 Problem Statement

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 Figure 1.3.1 Unemployment 1995-2021
Source: World Bank 2024

An analysis of previous research indicates that, before to Covid-19, and particularly

prior to 2019, the majority of studies on factors influencing unemployment were internal in
nature, focusing on things like work preferences, low soft skills, and unreasonable wage
demands. But several researchers started including the effects of the economic slump in their
research after the Covid-19 pandemic arrived in 2020. Examining the connection between
unemployment and the economy was another goal of some research.

The above picture illustrates how Malaysia's unemployment rate changed over time,
from 3.1% in 1995 to 2.4% in 1997. Based on the scenario, it appears that the nation's
economy was steady during those years, and the majority of people had stable jobs. But in
1998, the jobless rate rose sharply to almost 3.2%. This resulted from the July 2, 1997, Asian
financial crisis. Signs of a crisis started to emerge in Thailand at that time. A few months
later, currency speculators launched an attack on the Baht, forcing the Thai government to
float the currency. This caused the Baht to plummet 14%, despite the fact that the
government had to use almost $40 billion in foreign reserves to keep it stable. A similar
destiny befell Malaysia and a number of other nations. In June 1997, the value of the Ringgit
relative to the US dollar dropped from RM2.52 to RM4.62 (Ekonomi Rakyat, 2020). Due to

4
the instability this brought about in the Malaysian economy, there was a high rate of
unemployment.

In 2000, the unemployment rate dropped to 3.0%, and it rose to 3.5% in 2001 once
more. This unemployment rate was still seen as modest, nevertheless. After then, Malaysia's
unemployment rate started to decline, reaching 3.3% in 2008. The 2008 economic crisis was
the cause of Malaysia's 3.7% increase in unemployment in 2009. The world's financial
markets were in upheaval at the time due to the economic crisis. The Malaysian government
was forced to cut back on imports from other nations as a result, which also had an impact on
export revenue. Inadvertently, this resulted in higher unemployment. Malaysia's
unemployment rate remained very constant between 2010 and 2019, staying below 4.0%.
2020 saw the unemployment rate fall to 4.5%, which was its lowest point. This resulted from
the Covid-19 outbreak that hit Malaysia and forced many companies to close. This
consequently had an impact on Malaysia's economy and resulted in unemployment.

It is indisputable that the economic slump is one of the causes of the higher
unemployment rate in Malaysia, given the previously indicated reasons for the increase in the
rate. According to the study's findings, the unemployment rate was kept under control at less
than 4% even throughout the economic downturns of 1997 and 2008. On the other hand, the
unemployment rate rose to 4.5% during the Covid-19 epidemic, from above 4%. This
suggests that Malaysia did not reach full employment, which resulted in the waste of
financial resources and, in turn, had an impact on the productivity and social welfare of the
nation. Under this circumstance, graduates of the Covid-19 epidemic will suffer direct
consequences.

The economic downturn is one of eleven reasons that Zaliza and Mohd Safarin (2014)
list as contributing to the unemployment problem. Other studies, like Fazilah (2020), who
claimed that the global financial crisis had a major negative influence on youth globally and
caused an economic slowdown, also support this factor. At that point, the rate of youth
unemployment worldwide rose from 11.7% in 2007 before the crisis to 13.7% in 2013. The
Covid-19 epidemic in 2020 had a major impact on the nation's economic sector and
development, according to Abdul Rashid and Abdul Aziz (2020). As a result, the
unemployment rate in the first quarter of the year increased to 3.9% from 3.3% in 2019. The

5
Movement Control Order (PKP), which had a detrimental effect on the labour market, was
the cause of this high unemployment rate. Mohd Zaky Zainudin (2020) claims that a large
number of workers faced unemployment as a result of the PKP's impact on the employment
sector. As per the Institute de Publique Sondage d'Opinion Secteur (IPSOS) 2020 research,
the Covid-19 pandemic has caused anxiety for 61% of Malaysians, with the country's
economy also being impacted. Many employees were consequently forced to take several
months of unpaid leave or had their pay reduced by 20% to 50%. In the worst situation, some
may even lose their jobs. They would struggle to support themselves and their family as a
result of this circumstance since they would lose their source of income.

Figure 1.3.2 Unemployment rate by selected age group, Malaysia, 1982 –

2020
Source: Key Statistics of Labour Force in Malaysia, March 2020, Jabatan Perangkaan
Malaysia.
The unemployment rate for young people between the ages of 15 and 24 rose by 1.5
percentage points (+18.2 thousand people) to 12.0% in 2020, accounting for 314.0 thousand
unemployed youth (2019: 10.5%). In a similar vein, the youth unemployment rate, which was
6.7% in 2019, rose by 1.5 percentage points to 8.3% (plus 75.6 thousand people). Adults 25
to 64 had a 3.0% unemployment rate in 2019, up 1.3 percentage points from 1.7% in 2019.
Figure 5 shows that the youth unemployment rate is 12.0%, which is almost three times
higher than the overall jobless rate. Comparatively, the youth demographic makes up the
greatest share of the unemployed, contributing about 50% of the annual national
unemployment rate. (Key Labour Force Statistics, Malaysia, March 2020)

6
 Figure 1.3.3 Comparing GDP growth to retrenchment figures and the unemployment rate
Source: DOSM
The relationship between the GDP, employee termination or loss of work, and the
unemployment rate in Malaysia from 1997 to 2020 is depicted in Figure 6. Malaysia is a
progressive nation that saw average annual GDP growth of more than 4.5% between 1997
and 2019. Malaysia only twice saw economic downturns during this time, in 1998 and 2009.

Research on the subject of unemployment in Malaysia encompass a range of

viewpoints, including macroeconomic and labour supply perspectives. The unemployment
rate and real GDP have a negative correlation, according to a 2007 study by Zaleha Mohd
Noor, Norashidah Mohamed Nor, and Judhiana Abdul Ghani that examined Okun's law in
Malaysia using annual time series data from 1970 to 2004. A 1% decrease in unemployment
would result in a 1.75% rise in potential GDP, according to the multiplier for the
unemployment rate, which is lower than the one found by Okun. Additionally, the analysis
demonstrates that there is a two-way causal relationship between the real GDP and
unemployment factors. The economy would grow if unemployment decreased, and
unemployment would decrease if economic activity increased concurrently.

Every economic slump that lowers the nation's GDP has an effect on and raises the
unemployment rate across the board. The degree of rise in the unemployment rate, however,
appears to differ based on the government's role in terms of financial and physical measures
that can affect the rate of unemployment. The consequences of a crisis on the country's
economy, particularly the unemployment rate, can be lessened by the introduction of
appropriate policies or government actions.

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1.4 Research Question

1. What is the factors macroeconomy of unemployment in Malaysia?

2. What is the specific economic indicators exhibit the strongest correlation with
changes in unemployment rates in Malaysia over the past decade?
3. What is the suitable model for analysing the relationship between economic factors
and the unemployment rate in the Malaysia?

1.5 Research Objective

1. To identify the factors macroeconomy of unemployment in Malaysia.

2. To determine the specific economic indicators that exhibit the strongest correlation
with changes in unemployment rates in Malaysia over the past decade.
3. To propose the most suitable model that effectively captures and explains the
dynamics of this relationship based on empirical data.

1.6 Scope of study

This study's focus is on a thorough examination of the connections between

Malaysia's unemployment trends and other economic indicators. 20 years total, from 2002
to 2021, are covered by the study. The Department of Statistics Malaysia (DOSM) and
the World Bank are two reliable sources of secondary data that the study used to perform
this analysis.

The study makes use of panel data analysis and descriptive analysis techniques. Key
statistical measurements are summarised and interpreted in descriptive analysis to give a
thorough picture of the data. On the other hand, panel data analysis is a strong statistical
technique that takes into account both time-series and cross-sectional dimensions, providing a
more complex understanding of the interactions between variables.

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 The study's main goal is to investigate the relationship between the unemployment rate—
the dependent variable—and a number of independent variables. The GDP, FDI, population
growth, percentage of women in the population, inflation rate, and urban/rural population are
some examples of these independent variables. The study intends to provide light on the
intricate mechanisms impacting unemployment in Malaysia by examining these links.
Important elements of the study include the chosen economic indicators, whose effects on
unemployment rates will be carefully examined. The goal of the study is to identify the
primary indicators that have a significant impact on Malaysia's unemployment situation and
to determine the major variables contributing to the country's trends in unemployment.

1.7 Significance of Study

1.7.1 Academia and Researchers

The study adds to the body of knowledge by offering insightful information about the
complex interactions among inflation, unemployment, foreign direct investment, and
economic growth in Malaysia. This work provides a starting point for future economics and
regional studies investigations and conversations.

The work provides a methodological addition by utilizing panel data analysis and
descriptive analysis. This approach can help develop methodological work in economic
research by providing guidance for future studies looking at similar contexts.

Existing economic theories may be challenged or strengthened by the study's

conclusions. In some situations, this might spark scholarly debate and result in updated
economic models, which advances our knowledge of economic dynamics.

1.7.2 Industry

The study's conclusions are useful to Malaysian companies and investors. Making
educated decisions is made possible by having an understanding of the complex interplay
between economic conditions and unemployment. Based on these findings, industries can
modify their plans for growth, investment, and human resource management.

9
 Understanding how inflation and foreign direct investment affect unemployment rates
gives industries the insight to modify their plans to fit Malaysia's unique economic
environment. Resilience and sustainable growth depend on this adaptation.

1.8 Conceptual Framework

Population
Inflation
Growth

Female
FDI
Population

Urban
GDP Unemployment Population

Figure 1.8 Conceptual Framework

The diagram above shows the conceptual framework for this study. The purpose of this
section is to provide an overall guideline and illustration of the relationship between the
dependent and independent variables of this study. In addition, this study aims to investigate
the relationship between unemployment trends and economic indicators in Malaysia over a
span of two decades.

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1.9 Conclusion

In the pursuit of understanding the intricate dynamics between economic development,

unemployment, and key economic indicators, this study has delved into the Malaysian
context over a span of two decades. The foundational premise of this investigation rested on
recognizing that a nation's ability to flourish economically is inextricably linked to the
management of its labor force, particularly the challenge of unemployment.

In conclusion, the study suggests that strategies aimed at controlling economic openness
and fostering sustained economic growth are pivotal in addressing Malaysia's unemployment
challenges. These insights carry profound implications for policymakers, guiding the
formulation of targeted interventions to curtail unemployment and promote enduring
economic development. As we proceed into subsequent chapters, a deeper exploration awaits,
dissecting the specific relationships between economic growth, FDI, inflation, and
unemployment to unravel more layers of Malaysia's economic landscape.

Overall, the findings of this study contribute to a better understanding of the factors
influencing unemployment in Malaysia and provide insights for policymakers in shaping
economic strategies. The implications of these findings support the need to consider
economic openness and sustained economic growth in policy development to address the
issue of unemployment.

By comprehending these complex dynamics, policymakers and industry stakeholders can

formulate more precise initiatives and effective economic development strategies to generate
prosperity and well-being in Malaysia. The extent to which these measures are implemented
and executed will be critical in shaping the country's economic.

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 CHAPTER 2

LITERATURE REVIEW

2.1 Introduction

There is frequently a correlation between unemployment and a surplus of workers in

the market. This kind of situation is usually associated with problems that often impact rural
communities or nations that lag behind because of their underdeveloped economies, which
means that their citizens do not have access to enough employment opportunities. However,
issues with unemployment also arise in metropolitan regions, developing nations, and even
developed ones. This problem occurs when vacant positions cannot be filled for a variety of
reasons, including those related to the employers or the unemployed people themselves. As a
result, one can consider the causes of unemployment from the perspectives of labor supply
and labor demand. Both macroeconomic and microeconomic perspectives on the factors of
unemployment have been explored in a great deal of previous research. The links between
micro and macroeconomic variables, such as wage factors, prices, inflation, output levels,
interest rates, foreign direct investment, and so forth, are investigated using a variety of
theoretical models.

The problem that most developing nations, including Malaysia, are facing is that the
number of students pursuing higher education is rising, but it is not keeping up with the
demands of the labour market. Numerous problems have arisen as a result of the mismatch
between supply and demand in the graduate labour market. These problems include those
pertaining to the functions of higher education institutions, the programmes they offer, and
the calibre of graduates they generate. Rapid technical breakthroughs and growing
globalisation have caused substantial changes in the requirements and labour demand of the
graduate labour market. Universities now play a different role, stressing the importance of
prioritising graduates' employability through programme offers in addition to being hubs for
the advancement of knowledge. (Zakiah Jamaluddin and Nooriah Yusof, 2017)

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2.2 Definition and Meaning of Unemployment

People who fall within the working age range and are willing to work at the going
wage rates but are not currently employed are referred to as unemployed. The percentage of
the labour force that is actively looking for work is used to calculate the unemployment rate
(number of jobless people/total labour force X 100%). The amount of output and expenditure
is closely correlated with the quantity of job possibilities available. The economy is doing
better when the unemployment rate declines because businesses are adding more jobs as a
result of higher sales and output. The statistics are shown as percentages. The researchers
employed the Osman & Yussof (2005) study as a basis for their analysis, utilising the
unemployment rate to investigate the factors that impact unemployment in Malaysia.

2.3 Factors of Unemployment

Targeted stimulus packages have been implemented by the Malaysian government in

response to periods of elevated unemployment. The National Economic Recovery Plan
(PENJANA) in 2020 and the Economic and People Enhancement Package (PEMERKASA)
in 2023 are two notable examples. Significant financial resources are being invested in these
programmes, which seek to boost the economy and create jobs. Money is allocated for
training initiatives, small- and medium-sized business (SME) assistance, and salary subsidies,
demonstrating a holistic strategy to combating unemployment (Department of Statistics
Malaysia, 2023).

Concurrently, the government has launched programmes to create jobs via

organisations like MARA and PERKESO. With the goal of providing people with skills that
meet the demands of the labour market, PERKESO and MARA, respectively, offer
programmes in entrepreneurship and vocational training. Tax incentives and infrastructure
spending also help to draw in foreign direct investment, which may result in the creation of
new jobs (PERKESO, 2023; MARA, 2023).

The overall jobless rate in Malaysia as of Q3 2023 is 3.6%, which is lower than in
prior quarters. The fact that this number is still higher than the 3.3% pre-pandemic level in

13
2019 must be noted, as it indicates further difficulties in returning to full employment
(Department of Statistics Malaysia, 2023). Concerns about youth unemployment are still
present; in Q32023, the rate for those between the ages of 15 and 24 was 12.6%, which is far
higher than the national average. There are differences in unemployment rates between
education levels as well, which emphasises the significance of tackling issues at different
educational attainment levels (Department of Statistics Malaysia, 2023).

The skills gap between recent graduates and company demands is a significant cause
in unemployment. Certain skills are in high demand in some sectors, such technology, data
analytics, and renewable energy, but job losses may occur in established sectors as well. For
there to be a more uniform job landscape, this gap must be closed (World Bank, 2023).
Another problem is regional differences in employment and economic growth. Geographical
imbalances that affect Malaysia's potential as a whole are caused by some regions' greater
unemployment rates and stagnating earnings than others (Malaysia Productivity Corporation,
2023). A significant section of the Malaysian workforce is employed in the informal
economy, which is marked by poor salaries and no social security. This makes it more
difficult to accurately estimate the country's overall unemployment rate. It is imperative to
tackle concerns pertaining to the informal economy in order to promote equitable economic
growth and guarantee a more thorough comprehension of employment dynamics (United
Nations Development Programme, 2023).

2.3.1 Covid-19

The Covid-19 pandemic, also known as SARS-CoV-2, was initially identified in

Wuhan, China, in the middle of December 2019. It is thought that bats may have been the
mode of transmission (Shereen et al., 2020). The virus spreads via respiratory droplets from
coughing and sneezing, much like influenza, according to Shereen, M. A., Khan, S., Kazmi,
A., Bashir, N., & Siddique, R. (2020). This virus is extremely contagious and can result in
symptoms like fever, coughing, dyspnea, and possibly pneumonia and severe acute
respiratory syndrome (SARS-CoV-2). On March 11, 2020, the World Health Organisation
(WHO) labelled it a pandemic due to its high human-to-human transmission rate.

An infectious disease or virus that spreads widely and uncontrollably, outside a

particular community or region, is referred to as a pandemic. Zaharudin Muhammad (2020)

14
asserts that the Covid-19 pandemic poses a threat to larger regions, potentially encompassing
an entire state, continent, nation, or even the planet. A growing number of Covid-19 cases
that are uncontrollable and have the potential to result in a significant number of deaths in a
short amount of time will arise from the failure to promptly contain the Covid-19 pandemic.
The Covid-19 outbreak in Malaysia has significantly impacted the country's population's
health. As a result, on March 18, 2020, the Malaysian government issued the Movement
Control Order (MCO) to the general public in an effort to manage the growing number of
Covid-19 patients (Abdul Rashid Aziz, 2020).

As a result of the government's implementation of the Movement Control Order

(MCO) on the populace, Malaysia's unemployment rate increased slightly from 3.3% in the
month prior to the MCO's implementation to 3.9% in March 2020 (Official Portal of the
Department of Statistics Malaysia, 2020). The increase in the jobless rate is equivalent to
0.6%. Furthermore, the unemployment rate increased to 5.0% (1.1%) in April 2020 and 5.3%
in May 2020 (Official Portal of the Department of Statistics Malaysia, 2020). The increase in
May 2020 of 0.3% was due to an increase in the number of unemployed people from 778,800
to 826,100.

Furthermore, graduates have encountered several difficulties in their job hunt due to
the Movement Control Order (MCO) implementation. In addition to competing with other
recent graduates for jobs, recent graduates also have to deal with people who have lost their
jobs (Metro, 2021). Additionally, a lot of businesses or employers favour hiring people with
prior job experience in order to cut down on training expenses and the amount of time needed
to train new hires (Metro, 2021). The unemployment rate for young people (15–24 years old)
increased by 1.6%, or 11.3% in March 2020 to 12.9% in April 2020, which is a worrying
trend, according to BH Online (2020). According to Ekonomi Rakyat (2021) there was a
1.2% growth in the young aged 15 to 30 years from 7.8% in March 2020 to 9.0% in April
2020.

With the number of Covid-19 instances showing a worrying increase, reaching 20,596
cases out of a total of 1,203,706 cases on August 5, 2021, the Malaysian government
proceeded to apply the Movement Control Order (MCO) on August 6, 2021. 10,019 people
have lost their lives as a result of the Covid-19 pandemic's rapid spread throughout the
society (Ministry of Health Malaysia, 2021). Due to the fact that only a limited number of
sectors are permitted to function at a minimal level, the rise in Covid-19 cases has made it

15
difficult for Malaysians, particularly recent graduates, to find work (BH Online, 2021). Sinar
Harian (2021) reports that the Malaysian Institute of Economic Research (MIER) projects
that the Covid-19 epidemic will result in the loss of employment for around 2.4 million
Malaysians, as many firms will be forced to lay off employees as a means of surviving.
Furthermore, it is anticipated that the prolonged crisis would result in the loss of jobs for
roughly 25 million workers worldwide (Sinar Harian, 2021).

There is no denying that the goal of every Malaysian, if not every person in the
nation, is to find employment that corresponds with their degree of education and experience.
Still, not every person will be able to find work that fits their educational background. This is
due to the fact that the Movement Control Order (MCO) that was put into effect in Malaysia
caused many sectors to instantly stop their operations in an effort to stop the Covid-19
outbreak from spreading throughout the society. Furthermore, the PKP's forced business
closures have made it difficult for many businesses to pay their bills, including employee
salaries, to the point where some have been forced to make the painful decision to fire
employees (Official Portal of the Department of Statistics Malaysia, 2020). Furthermore,
some firms have been forced to fire all of its staff members after declaring bankruptcy
because they were unable to continue operating. These businesses' or employers' activities
will cause their workers to lose their source of income. In fact, it is believed that the Covid-
19 pandemic has reduced work prospects for recent graduates and the general population,
which has raised Malaysia's unemployment rate. Therefore, the Covid-19 pandemic crisis is
most likely to blame for Malaysia's rising jobless rate.

2.3.2 Lack of Technical Skills

People with strong technical skills are those who can apply particular information or
abilities in a way that follows protocols. For instance, in order to guarantee that the work or
activities carried out by these people are carried out successfully, professions requiring
abilities in accounting, finance, and engineering require applicable experience and training in
addition to prioritising theoretical knowledge. Moreover, workers' proficiency in technical
and vocational skills might draw in foreign capital and lead to the establishment of factories
in Malaysia (Fazilah, Rozita & Riska, 2020). Foreign investment has an indirect positive
effect on a nation's unemployment rate by providing employment chances for its citizens

16
(Noriah, Norain & Sharifah, 2013). In addition, a high unemployment rate can lower the
nation's poverty rate and raise gross domestic product. Long-term benefits of foreign
investment to a nation include the capacity to develop a competitive workforce and an
improvement in knowledge transfer, claim Roziana, Norlin, and Ishak (2017).

People with low technical skills are thought to be one of the main reasons businesses
do not give jobs to them, according to a study done in 2015 by Zafir, Ishak, and Abd Hair.
The reason for this is because businesses value employees with strong work skills more.
Indeed, compared to graduates from Public Higher Education Institutions (IPTA) and Private
Higher Education Institutions (IPTS), those with qualifications in Technical and Vocational
Education and Training (TVET) are observed to receive more job offers. This is due to
TVET's greater emphasis on training or education that is practical in nature as opposed to
academic education that is theory-focused and more scholarly (Fazilah, Rozita & Riska,
2020). Furthermore, it is assumed that those lacking certain technical abilities are not very
knowledgeable or skilled. Furthermore, graduates' perception is that university course
offerings fall short of what businesses need in terms of skill sets. As a result, the rise in
Malaysia's unemployment rate is probably caused by people's lack of technical skills.

2.3.3 Individual Attitude

An further factor contributing to the rise in Malaysia's unemployment rate is people's

tendency to be too picky when it comes to their employment choices. A study by Fazilah,
Rozita, and Riska (2020) found that 176 out of 351 respondents agreed that it is difficult for
people to fit into the labour market when they are overly picky about their jobs. Even without
any prior work experience, a lot of university graduates are known to aspire to large incomes
and generous annual bonuses (Fazilah, Rozita & Riska 2020). It is indisputable that one of
the main reasons graduates are being picky about their jobs is salary concerns. Inflation was
seen to have a negative impact on university graduates' starting salary between 2010 and
2018 (BH Online, 2019). Graduates from universities are forced to look for jobs with high
compensation since they need to make ends meet after graduation due to rising living
expenses and student loan debt from the National Higher Education Fund Corporation
(PTPTN).

17
 Furthermore, the factor of extremely low pay may also be responsible for the rise in
Malaysia's unemployment rate in 2020. In contrast to the previous year, when starting salaries
ranged from RM2,001 to RM2,500, university graduates would henceforth get starting
salaries between RM1,001 and RM1,500, according to Datuk Seri Mustapa Mohamed, the
Minister in the Prime Minister's Department (Economy) (Sinar Harian, 2021). Due to the
decreased demand for jobs after the Covid-19 pandemic-related economic crisis last year,
salaries declined (Sinar Harian, 2021). University graduates are now compelled to choose pay
that are appropriate for their employment and degree due to the large salary gap. Employers
who benefited from the Movement Control Order (MCO) were able to entice top graduates to
join their teams with attractive compensation packages. However, businesses that were badly
hit, such those in the hotel, airline, and tourist sectors, prioritised company rehabilitation
above recruiting new staff (Utusan Malaysia, 2021).

A few people in Malaysia were picky about the companies they worked for during the
Covid-19 outbreak because they thought that well-positioned enterprises would guarantee job
security. It is up to each person to select a career that fits their interests, background, and
degree of education because it ensures a stable future (Kalaisevi A/P Karunamurthi & Lai
Wei Sieng/ 2018). Employee discontent may result from selecting an unsuitable professional
path. When a company offers a position that is below their degree requirements, some people
will really settle for being unemployed. It is recommended that career decisions be in line
with an individual's interests and preferences in order to prevent abrupt resignations by
employees (Kalaisevi A/P Karunamurthi & Lai Wei Sieng 2018). On the other hand, seeking
employment might be challenging for certain people for a variety of reasons if one is overly
picky about their employment (Rozita & Falex, 2018). An analysis by Fazilah, Rozita, and
Riska (2020) indicates that the current state of unemployment among graduates is more a
result of personal views than a shortage of career opportunities.

2.3.4 Lack of Self-Preparation For Interviews

According to research by Fazilah, Rozita, and Riska (2020), a person may not receive
a job offer if they exhibit inadequacies in their self-presentation during interviews and lack of
confidence. Employers undoubtedly place a great deal of weight on personality traits when
making hiring decisions. Interviewers may be persuaded to select a qualified applicant for a
position within their company if they see a candidate who exudes confidence, grooming,

18
politeness, and happiness. Furthermore, a pleasant and appealing appearance can make a
good first impression on other people. Furthermore, those with strong communication
abilities inadvertently exhibit high levels of confidence in themselves. With these benefits,
students can catch employers' attention and receive a job offer, which will advance their
professional trajectory.

According to Astro AWANI (2013), an individual's inability to obtain broad

knowledge may also contribute to their difficulty in finding work. Hamidah, Rohailin, Siti,
and Rusyda (2017) provide more support for this claim in their study, which indicates that a
significant number of job interviewees are underprepared and have insufficient expertise.
Those who are ill-prepared for interviews are more likely to experience anxiety, which makes
it difficult for them to provide employers with accurate and insightful answers. The
interviewer gets the sense that you are anxious inadvertently. Furthermore, the worry that
arises leaves the person with insufficient confidence to show themselves to the company,
which finally ends in employment rejection.

2.3.5 English Proficiency

Undoubtedly, English is important and widely used, and those who speak it
effectively can make a good impression on employers. Since English is widely recognised as
a universal language or a medium of communication, its importance resides in its capacity to
create job chances (Fazilah, Rozita & Riska, 2020). In addition, English is being stressed as a
communication language in business dealings by the trade and economic communities. This
demonstrates how having proficiency in this language might increase employment prospects
both domestically and abroad. Furthermore, a high level of English proficiency among the
populace may draw visitors from outside Malaysia. The nation's economy can grow and more
job possibilities can be created with an increase in visitor arrivals.

Unfortunately, hardly everyone in Malaysia speaks English well, particularly in the

countryside. According to earlier research, Malay students encounter difficulties learning and
using English (Marhani Kamaruddin & Amree Ahmad, 2002). The fact that English is a
second language in Malaysia gives rise to this predicament. Many prestigious organisations
refuse to hire recent graduates because they lack job experience and are perceived as less
fluent in the English language, according to BH Online (2018). This suggests that companies

19
place a high importance on their employees' English communication skills in addition to their
academic background. Universiti Putra Malaysia (UPM) Vice-Chancellor Prof. Datin Paduka
Dr. Aini Ideris claims that many graduates who struggle with English feel less confidence
than their fluent English-speaking counterparts, which can indirectly result in failure in job
interviews (BH Online, 2018). Thus, a lack of skill in the English language could possibly be
linked to Malaysia's rising unemployment rate.

2.4 Specific Economic Indicators That Exhibit The Strongest Correlation With Changes
In Unemployment Rates In Malaysia Over The Past Decade.

2.4.1 Gross Domestic Product (GDP)

The entire value created by all producers in the economy, including taxes and minus
subsidies, is known as the gross domestic product, or GDP. Deductions for asset depreciation
are not included in the calculation of GDP. The information is presented in percentages. The
researchers employed GDP in their investigation, drawing on the work of Were (2001). The
GDP was utilised by the researchers to investigate how foreign debt affected economic
growth. In addition, Calvo (2009) employed per capita GDP in the research.

There is an inverse relationship between unemployment and GDP (gross domestic

product), according Okun's 1970 study. Based on his research, a 1% decrease in
unemployment might result in a 2-3% growth in GDP. Later, numerous further investigations
along these lines, including those by Downes (1998) and Dornbusch, Fischer, and Startz
(2001), were conducted to bolster Okun's law. Thus, it is clear that the absence of
employment affects consumers' ability to make purchases and, consequently, the growth of a
country's total expenditure. Okun's law was verified by Farzad Farsio's 2003 empirical
research. According to the Chow stability test, the negative relationship between GDP and
unemployment is constant throughout the studied period, supporting the study's conclusion
that unemployment is a cause of GDP. US time series data from 1977 to 2001 were used in
the analysis on a quarterly basis. Okun's law is, however, contradicted by studies conducted
by Prachowny (1993), Blinder (1997), and Altig, Fitzgerald, and Rupert (1997). Their
analysis of GDP and unemployment showed a positive link, suggesting that changes in output
are related to labour productivity—a component that Okun's 1970 study overlooked.
Employee productivity variations could be influenced by a variety of variables, including

20
technological advancements seen in the US and other Western nations. Plus, improvements in
labour quality, such as overtime, skill, and training, might also have an effect. All these
elements have the ability to increase GDP, even if they might not always lead to a decrease in
unemployment.

Their relationship to unemployment is also examined using other macroeconomic

indicators. For instance, Dutt, Mitra, and Ranjan's 2007 study looked into how the trading
model affected unemployment. Utilizing cross-sectional data regarding the trade policies of
the countries under investigation, they discovered a negative correlation between economic
openness (exports + imports / GDP) and unemployment. According to the findings of the
Ordinary Least Squares (OLS) estimation, a 1% increase in economic openness would result
in a 1.2% decrease in unemployment. Felbermayr, G., Prat J., & Hans-Jörg Schmerer (2010)
adopted a similar stance and discovered a negative correlation between economic openness
and the unemployment rate using panel data from 20 OECD nations.

2.4.2 Foreign Direct Investment (FDI)

One of the main ways that developed and developing nations have transferred wealth
internationally is through foreign direct investment, or FDI (Froot, 1993). Investment,
according to Salleh et al. (2012), is the infusion of cash flow into a nation. Consequently,
shifts in the investment rate will result in either improving or worsening economic
circumstances. US dollars (USD) are utilised as the unit of data. In order to investigate the
variables influencing foreign direct investment in Malaysia between 1980 and 2013, Rasidi's
(2011) study used FDI. Yusof (2011) also carried out research on FDI. His studies focused on
the relationship between foreign direct investment and the growth of Penang's electrical and
electronic goods sector between 1970 and 2007.

Foreign Direct Investment (FDI) is another often utilized macroeconomic variable in

this research. The majority of earlier research points to foreign direct investment (FDI) as a
vital source of funding that supports domestic private investment, creates additional job
opportunities, facilitates transfer of technology, and ultimately accelerates economic growth
in host nations (Chowdhury & Mavrotas, 2006). The conclusions of Marian, Dinga, and
Daniel Münich's (2007) impact research on the labor market in the Kolin region of the Czech
Republic between 1993 and 2006 regarding foreign investment in the Toyota-Peugeot

21
Citroën Automobile (TPCA) project support this. By applying the Ordinary Least Squares
(OLS) technique, they discovered that FDI had a noteworthy impact. With FDI in, there was
a 1.7% decrease in the unemployment rate and a 3.7% rise in labor utilization. A study by
Rafiq M, Iftikhar Ahmad, Asmat Ullah, and Zahoor Khan (2009) that employed Simple
Single Equation Linear Regression (SELRM) and discovered that FDI had a negative effect
on unemployment in Pakistan produced results similar to these.

There are, however, differing conclusions about how FDI and unemployment are
related. Aktar and Ozturk carried out one such study in Turkey (2009). From 2000:1 to
2007:4, the variance decomposition and impulse response functions were subjected to the
VAR technique in order to investigate a range of internal correlations between GDP,
unemployment, exports, and foreign direct investment. According to the study, GDP and FDI
had little effect on Turkey's unemployment rate.

2.4.3 Inflation

The inflation rate is measured using the Consumer Price Index (CPI), which indicates
the annual percentage change in the average cost consumers acquire goods and services over
a specific period. A study conducted by Ramzan & Ahmad (2014) utilized inflation as a
variable in research related to the objectives or tasks of macroeconomic policy. Ramli et al.
(2016) also conducted a study related to the inflation rate, specifically focusing on the
"impact of oil price increases on the inflation rate."

Mansor Jusoh (1990) claims that research on the connection between unemployment
and inflation rates was made possible by Philips's 1958 study. Philips (1958) first found that
increases in wages and unemployment in Britain were inversely related. This connection was
named the "inflation-unemployment relationship" by later economists like Solow &
Samuelson (1960). The conventional Philips curve indicates that unemployment and inflation
have a consistent, negative connection. Using data for the United States from 1935 to 1959,
Samuelson and Solow (1960) similarly discovered a negative connection. Friedman (1968)
questioned the Philips curve, nevertheless, because data on unemployment and inflation in
the US after 1970 did not clearly indicate a relationship.

According to research by Edmund (1967) and Friedman (1968), there is only a short-
term stable negative relation between unemployment and inflation when inflation is predicted
22
to be constant. While in the long run, the Philips curve appears when the rate of projected
inflation equals that of actual inflation. Friedman proposed that stagflation, or rising rates of
both inflation and unemployment, could be positively linked. When there is no trade-off
between unemployment and inflation, the long-term Philips curve can likewise be vertical.

It has been discovered by earlier research that there might be a positive or negative
correlation between the rates of unemployment and inflation. For instance, Schreiber and
Wolters (2004) discovered a long-term inverse connection amongst inflation and the
unemployment rate in Germany using VAR cointegration analysis. The identical conclusions
for Spain were also confirmed by Snower & Karanassou (2002). They came to the conclusion
that as money growth increases, unemployment rates decline and inflation rates rise.
However, the four countries under consideration—Pakistan, India, Bangladesh, and Sri Lanka
—received different results from a study conducted in 2011 by Muhammad Imtiaz Subhani,
Osman, and Nayaz. By using basic regression analysis on annual data from 1981 to 2010,
they discovered a negative correlation between Bangladesh's unemployment rate and
inflation. The partnership proved advantageous to Pakistan. In the meantime, there was no
discernible correlation between unemployment and inflation in Sri Lanka or India. According
to Beyer & Farmer's (2002) research, the long-term Philips curve in the US from 1959 to
1999 had a positive slope.

2.4.4 Population

The factor definition of population, which includes all inhabitants regardless of

citizenship or legal status, provides the foundation for calculating the total population. The
figures displayed are midyear projections. (World Bank, 2022)

National population surveys serve as the foundation for most population estimates.
Extrapolations or interpolations based on demographic models are used to provide estimates
for the years before to and following the census. Undercounting and errors happen even in
high-income nations. Because of the lack of transportation, communications, and other
resources needed to conduct and analyse a complete census, inaccuracies in developing
nations may be significant. Public confidence in the government, the government's dedication
to a complete and accurate enumeration, the secrecy and protection of census data from
misuse, and the independence of census agencies from political influence all have an impact

23
on the quality and dependability of official demographic data. As of 2022, the U.N.
Population Division

Furthermore, variations in the notions, definitions, methods of data collecting, and

estimating techniques employed by national statistics agencies and other data gathering
organisations restrict the comparability of population indicators. The quality of demographic
data can be objectively assessed by looking at factors like census currentness and the
availability of supplementary information from surveys or registration systems. In the
absence of a census, the registration systems in several European countries provide
comprehensive demographic data. The United Nations Statistics Division will be keeping an
eye on the completion of critical registration systems in 2023. Over the past 60 years, some
emerging nations have made progress, but others still have issues with their civil registration
systems.

The only other factor that directly affects a nation's population increase, aside from
birth and death rates, is international migration. Migration is hard to estimate. Many
individuals are always present abroad, whether as travellers, employees, refugees, or for other
purposes. Estimates need hard-to-get data on movements into and out of nations, and there
are differing standards for the length and nature of international moves that count as
migration. Based on the UN Population Division's World Population Prospects 2022 database
medium variation, population estimates are made using assumptions about mortality, fertility,
and migration by age and sex until 2050, starting from a base year.

2.4.5 Female Population

The proportion of women in the population is known as the female population. The de
facto definition of population, which includes all inhabitants regardless of citizenship or legal
status, serves as the foundation for population estimates. Almost half of all people on Earth
are female. A key demographic indicator is the ratio of the female to male population, which
reflects historical occurrences like wars as well as the sociodemographic and ethnocultural
traits of the populace. (World Bank, 2022)

2.4.6 Urban Population

24
 The term "urban population" describes the people who, according to national
statistical authorities, reside in urban regions. The World Bank's population estimates and the
United Nations World Urbanisation Prospects' urban ratios are used to determine it. Due to
differing national coverage, the population total may not be reached by combining the
populations of urban and rural areas. (World Bank, 2018)

The term "urban population" describes the people who, according to national
statistical authorities, reside in urban regions. Urban ratios from the United Nations World
Urbanisation Prospects and World Bank population estimates are used to create the indicator.
The World Bank's population figures were combined with UN ratios of urban to total
population to determine urban populations. Different nations categorise their populations as
"urban" or "rural." The limits selected determine how many people live in a city or
metropolitan area. (World Bank, 2018)

2.5 The Relationship Between Economic Growth, Foreign Direct Investment, And
Inflation Rate With Unemployment In Malaysia.

Numerous viewpoints are included in research on Malaysia's unemployment problem,

including macroeconomic and labor supply perspectives. The unemployment rate and real
GDP were shown to be negatively correlated in a study by Zaleha Mohd Noor, Norashidah
Mohamed Nor, and Judhiana Abdul Ghani (2007) that examined Okun's law in Malaysia
using annual time series data from 1970 to 2004. A 1% decrease in unemployment would
result in a 1.75% potential rise in real GDP, according to the unemployment rate coefficient,
which was lower than Okun's estimate. The study also showed that there is a two-way causal
relationship between real GDP and the unemployment rate. In other word, the economy
would grow if unemployment fell, and unemployment would fall if economic activity rose at
the same time. According to Tingi & Lingii's (2011) research, Okun's law is in effect in
Malaysia. Using the Autoregressive Distributed Lag (ARDL) method, the findings
demonstrated a long-term, consistent negative link between output growth and the
unemployment rate.

The dynamic relationship between FDI, unemployment, economic growth, and

exports was examined in Thirunaukarasu's (2008) study. The study discovered that exports
and economic growth were the primary factors influencing unemployment in Malaysia using

25
VAR methodologies. Thus, to guarantee low unemployment, it is essential to sustain strong
economic growth and the export-oriented industry. In 2002, Rasiah conducted a study to
investigate the effects of trade development on labor utilization, skills, and wages in the
manufacturing sector. The study discovered that FDI is a major force behind the expansion of
export-oriented manufacturing. The findings showed that the unemployment rate has
decreased with a continuously low inflation rate thanks to foreign direct investment, which
accounts for a sizable amount of manufacturing exports. In his 2007 study, Fumitaka Furuoka
examined the correlation between unemployment and inflation between 1973 and 2004.
Utilizing the Vector Error Correction Model (VECM) technique, the research discovered a
negative correlation between unemployment rates and inflation over an extended period of
time. Additionally, a cause-and-effect relationship between the short-term inflation rate and
unemployment rate was found by the study.

The analysis of previous research, both domestically as well as globally, indicates that
a nation's unemployment rate is influenced by a number of important variables. Most
significantly, the output of a nation and unemployment are inversely correlated. Nevertheless,
results from earlier research also suggest that the factors contributing to the unemployment
problem are not entirely clear. Thus, the purpose of this article is to examine the relationship
between unemployment and a number of macroeconomic factors that are significant when
considering the Malaysian economy.

26
 CHAPTER 3

RESEARCH METHODOLOGY

3.1 Introduction

Qualitative research methodology is a strong and adaptable strategy used in many

different fields to investigate, comprehend, and analyse complicated phenomena.
Qualitative research focuses on capturing the depth and variety of human experiences,
perceptions, and behaviours, in contrast to quantitative research, which is dependent on
numerical data and statistical analysis. Uncovering the underlying meanings and patterns
present in social interactions is the aim of this interpretive and context-driven research.

The fundamental aspect of qualitative research is its dedication to investigating

the subjective aspects of human existence. Researchers interact with participants in an
open-ended and flexible way using methods like focus groups, in-depth interviews,
participant observations, and content analysis, which enables a more thorough
examination of their viewpoints. This approach is especially useful for researching
subjects where background, cultural quirks, and personal perceptions are significant
factors.

Through the use of a smaller, purposefully chosen sample, qualitative research

frequently allows researchers to focus in-depth on certain cases or phenomena. In
qualitative research, the data are usually non-numerical and subjected to analytical
techniques such as grounded theory, narrative analysis, or thematic analysis. Researchers
can develop new ideas or improve on old ones with this method, which offers a
sophisticated grasp of the intricacies present in social phenomena.

Qualitative research approach is utilised in this study to examine and understand

the many elements that contribute to unemployment in Malaysia. Through the application
of a qualitative lens, the study attempts to reveal the various facets of unemployment by
taking into account the lived experiences, opinions, and social dynamics associated with
this problem. The study aims to contribute to the economic indicators and trends in

27
 unemployment within the Malaysian socio-economic environment by using qualitative
methodologies.

3.2 Research Design

The term "research design" often refers to the structure used to plan and execute a
specific investigation (Punch K.F., 1998). The four main components of research design are
the strategy, the conceptual framework, the selection of who and what to study, and the tools
and techniques to be used for gathering and analysing data. This makes research design a
crucial step in the procedure.

There are basically two types of this type of study design: qualitative research and
quantitative research (Holmes R. et al., 2005). In this study, the researcher used qualitative
research approaches. Social science researchers have developed qualitative research
approaches to investigate social and cultural phenomena. These methodologies entail
examining the attitudes, beliefs, behaviours, and views of the general population (G. Ramesh,
2008). Among the various forms of qualitative techniques are theory-based data, case study
research, and inquiry investigations. Qualitative information can be obtained by secondary
data, document and text inspection, and other methods.

In this study, the secondary data gathering approach is applied. Secondary data
collection can be used to measure the relationship between Malaysian unemployment trends
and economic indices. The collection of secondary data is a crucial method that qualitative
researchers regularly use. The purpose of collecting secondary data is to provide researchers
with a more precise and efficient means of obtaining information.

3.3 Data Collection Method

Information gathered from pre-existing sources is referred to as secondary data. For

instance, meeting minutes, annual reports, published reports, theses, websites, and statistical
data are examples of organisational records. Because it is more explicated in relation to
"existing data," this secondary data is the opposite of primary data. Secondary data for this
study was gathered from internal and published sources, including websites, journals,
organisational annual reports, electronic system procedures, and articles.

28
3.3.1 Government Reports

Government reports provide comprehensive and trustworthy information on a wide

range of subjects pertaining to the political, social, and economic condition of a country,
making them indispensable for data collection. Government ministries or agencies in charge
of specific industries regularly release these reports. Reports from several significant
Malaysian government agencies are regularly released, offering helpful data to academics and
policymakers.

A reputable source of government reports is the Department of Statistics Malaysia

(DOSM), commonly known as the Jabatan Perangkaan Malaysia. Official statistical data
collection, assembly, and distribution are the primary responsibilities of DOSM, the primary
government agency. The studies they produce cover a wide range of topics, including
economic indicators, demographic data, and labour market statistics. Numerous academic
investigations and policy formation processes rely heavily on the highly reliable reports
published by DOSM.

The World Bank highlights that attaining global development goals and ending
poverty depend heavily on having statistical data of the highest calibre. For the purposes of
establishing baselines, selecting appropriate courses of action, tracking advancement, and
assessing effects, accurate and timely statistics are crucial. The World Bank's Development
Data Group manages sector, financial, and macro databases in addition to coordinating
statistics activities. The organisation works with its member nations to improve the
capability, efficacy, and efficiency of their national statistical systems.

In Malaysia, the Economic Planning Unit (EPU) makes a significant contribution to

official reports. The Prime Minister's Department is home to the EPU, which is essential to
organising and directing the country's economic policies. Their reports, which usually include
in-depth research, economic forecasts, and development plans, offer crucial insights into the
government's economic policies.

29
3.3.2 Secondary Data

The research objectives in this study will be carried out through the utilisation of
secondary data. Data that was not gathered by the researchers themselves is referred to as
secondary data (Martins et al., 2018). In other words, secondary data are data that have been
collected in the past by other researchers and are being considered for reuse (35).
Furthermore, according to Martins et al. (2018), the usage of secondary data was not planned
but could be useful in this situation rather than being the answer to the original inquiry.

One can find secondary data in a number of places. First, official sources. Because
these data originate from reputable government institutions, they are regarded as one of the
most trustworthy sources (Martins et al., 2018). Secondly, private organisations and
companies. Although this type of data is also regarded as one of the most trustworthy,
accessing it can be difficult and costly because private organisations and organisations
typically charge for access to their data. Additionally, the World Bank Enterprise Survey
(WBES) databases are a great place to find information, and this research study will use some
of the WBES data for its data collection. The world economic indicator and macrotrends are
two more sources of data used in this study.

Secondary data for this study will be collected from 2002 to 2021 using World Bank
Economic Indicator (WBES) and DOSM. In order to measure the independent variables of
GDP, inflation, FDI, population, female population, and urban population on unemployment
in Malaysia, twenty years of data will be employed in this research project. Data will be
gathered from multiple sources and then entered into Excel. The data will be taken out of
Excel and imported into the statistical programme IBM SPSS Statistic 23. Every piece of data
will then be processed in order to provide results for Chapter 4.

3.4 Dependent Variable and Independent Variables

The association between independent and dependent variables was explained in this
study using the following metrics: unemployment, GDP, inflation, FDI, population growth,
female population, and urban population. Below will be a detailed explanation.

30
 Dependent Variable (Y): Unemployment

Independent Variables (X):

X1: GDP
X2: Inflation
X3: FDI
X4: Population Growth
X5: Female population
X6: Urban population

3.5 Theoritical Framework

One type of analytical tool that can be used in many different contexts and situations
is a theoretical framework. It offers a broad overview of the research and can be applied to
many different types of tasks. The concepts are arranged and theoretical distinctions are made
using the framework. A theoretical framework that is represented as a network, or "a plane,"
of concepts that interconnect variables to provide a comprehensive explanation of an event or
occurrences is what Jabareen (2009) refers to. Put another way, the purpose of the theoretical
framework is to provide a detailed knowledge of the topic. A characteristic of the theoretical
framework is its ability to offer an interpretive perspective on social reality (Jabareen, 2009).
A framework is used to provide context for the work under study. A theoretical framework is
necessary to investigate the idea that there are links between variables, according to Taylor et
al. (2011). The majority of earlier studies, including Hair et al. (1998), Lin and Lee (2004,
2005), and Lee et al. (2010), concurred that the theoretical framework technique is the most
useful tool for testing the hypothesis (Taylor et al., 2011). Jabareen (2009) asserts that the
term "model" is used when referring to variables or factors.

In order to evaluate the hypothesis, a model based on independent and dependent

variables was created for this study. The dependent variable in this study is unemployment,
while the independent variables are GDP, inflation, FDI, population growth, female
population, and urban population. Testing will be done on the relationship between the
independent and dependent variables after the model has been designed. Figure 3.5 presents
the suggested model for the correlations between the variables. Six independent variables are
included in the model that is being proposed: (1) GDP, (2) inflation, (3) FDI, (4) population

31
growth, (5) female population, and (6) urban population. The dependent variable is
unemployment.

Inflation

GDP

Unemployment
FDI

Population Growth

Female Population

Urban Population

Independent Variables Dependent Variable

Figure 3.5: Model of the Relationship between Independent Variables and Dependent
Variable

In the association diagram, all the factors were shown in standardized parameters.
GDP= gross domestic product; IN= inflation; FDI= foreign direct investment; POP=
population growth; FP= female population; UP= urban population; UNE= unemployment.

3.6 Econometric Model

The secondary data collection strategy was employed in this study to obtain all the
trustworthy data from a variety of sources. Analysing panel data is used in this investigation.
Consequently, two panel data analysis models are produced by the following equation:

UNEi𝑡 = 𝛽0 + 𝛽1GDPi𝑡 + 𝛽2INi𝑡 + 𝛽3FDIi𝑡 + 𝛽4POPi𝑡 + 𝛽5FPi𝑡𝑡 + 𝛽6UPi𝑡 + 𝑒

32
Where:

UNE: unemployment
𝛽0: Constant
𝛽1- 𝛽6: Coefficient of Parameters
GDP: gross domestic product
IN: inflation
FDI: foreign direct investment
POP: population growth
FP: female population
UP: urban population
i: Country
t: Year
e: Error Term

GDPi𝑡 = 𝛽0 + 𝛽1UNEi𝑡 + 𝛽2INi𝑡 + 𝛽3FDIi𝑡 + 𝛽4POPi𝑡 + 𝛽5FPi𝑡 + 𝛽6UPi𝑡 + 𝑒

Where:

GDP: gross domestic product

𝛽0: Constant
𝛽1- 𝛽6: Coefficient of Parameters
UNE: unemployment
IN: inflation
FDI: foreign direct investment
POP: population growth
FP: female population
UP: urban population
i: Country
t: Year
e: Error Term

3.7 Data Analysis Technique

33
 Three methods of data analysis will be used in this study is panel regression using
Ordinary Least Squares (OLS) panel regression, and correlation analysis. To accomplish the
goals of the study, all three analytic techniques will be applied.

3.7.1 Descriptive and Correlation Analysis

Descriptive analysis is one of the analytic techniques that will be used in this study to
ascertain the relationship between independent and dependent variables. Kua (2016) states
that descriptive analysis is utilised in a data matrix to describe the variables, which are the
answers to the queries. Information is summarised in the form of a frequency table with the
help of statistics, which are usually related to frequency analysis. The purpose of descriptive
analysis is to summarise the dependent and independent variables in a large set of data in
order to produce figures that are precise, comprehensible, and easy to read. The link between
the dependent variable and the independent variables will next be examined using correlation
analysis. A monotonic relationship between two variables can be measured using Pearson's
correlation. In 2018 Schober, Boer, and Schwarte. Determining whether or not there is a
linear relationship between the two variables is the purpose of computing the test. The
correlation between the two variables is denoted by the letter r and is represented by a value
between 1 and +1, where 0 denotes no correlation and 1 denotes a complete or perfect
correlation, according to Akoglu (2018). In addition, the r symbol denotes the connection's
orientation. For instance, a negative r suggests that the variables are inversely related. The
correlation's strength rises from 0 to +1 as well as from 0 to −1. Thus, the purpose of this
section was to ascertain if unemployment and the following independent variables—GDP,
inflation, FDI, population growth, female population, and urban population —correspond
significantly.

3.7.2 Ordinary Least Squares (OLS) Panel Regression

Panel regression with the Pooled Ordinary Least Squares method will be employed to
evaluate the relationship between independent factors and dependent variables. The temporal
and individual characteristics of a dataset are ignored by the Pooled OLS (Ordinary Least
Squares) model, which treats it like any other cross-sectional data collection. The statistical
technique known as "Ordinary Least Squares Regression" is used to estimate the relationship

34
between a dependent variable and one or more independent variables. The relationship is
estimated by minimising the sum of squares in the difference between the dependent
variable's predicted and observed values, which is then plotted as a straight line. In this
article, OLS regression will be discussed in the context of a bivariate model, or a model in
which a single independent variable (X) predicts a single dependent variable (Y). In contrast,
the multivariate model with two or more independent variables just needs to extend the logic
of OLS regression. In order to determine whether there is a relationship between a few
independent factors and a dependent variable, Pooled OLS will be utilised.

3.8 Conclusion

This chapter concludes with a discussion of the research design and methods, data
descriptions, variables, theory to be used, econometric model, theoretical framework,
hypothesis statement, and suggested empirical approach. To accomplish the goal of the
research, all of these procedures are essential. There is a link between the third and fourth
chapters. The following chapter will present the patterns of the data and an analysis of the
findings that are connected to the research questions and hypotheses. The statistical analysis
findings, displayed in a table, will be covered in Chapter 4 along with an explanation and
analysis of the hypothesis.

35
 CHAPTER 4

ANALYSIS AND EMPIRICAL FINDINGS

4.1 Introduction

Methods using strategies, techniques, and other factors utilised in the data collection
process. The researcher will use a chosen statistical analysis scale to present, interpret, and
explain the data in this chapter. The IBM SPSS Statistic 23 was used to enter all of the data,
and it was this statistical analysis programme that provided the data interpretation. This
chapter will present the results divided into three sections by the researcher. The examination
of the descriptive data was covered in the first section. Analysis of correlation was the subject
of the second segment. Panel regression analysis was covered in the third portion of this
chapter.

4.2 Descriptive Analysis

One strategy that is frequently used to condense features into an information

collection is descriptive statistics. It is frequently employed to calculate the data's mean and
standard deviation. Typical measurements include variability, dispersion, and central
tendency. The terms mean, mode, and median are used to describe central tendency, whereas
variance, standard deviation, and range are more closely associated with dispersion or
variability. The independent and dependent variables in this study were solely analysed using
the mean and standard deviation. By measuring and analysing the data's central tendency, the
mean provides a broad overview of the data without needlessly overwhelming the reader with
every observation in a dataset (Saufi & Rusuli, 2012). Additionally, the standard deviation is
used to calculate the degree of difference from the mean (Saufi & Rusuli, 2012). In addition,
the skewness and kurtosis of the data were discussed in order to clarify whether the graph's
tails tend to shift more to the left (negative) or right (positive). Additionally, skewness and
kurtosis were the most crucial factors. The descriptive analysis for the data utilised in this
study is displayed in Table 4.2 below.

36
 In evaluating the descriptive analysis, the researcher concentrated on four elements, as
shown in Table 4.2 below. Skewedness was the initial component. The asymmetry of the
series' distribution around its mean was quantified using skewness. Put another way, the
researcher was interested in seeing if the graph's tail was longer on the right, which would
suggest a good result, or on the left, which would indicate a negative result. Only one
independent variable, IN positive skewness, is shown in Table 4.2 below. This indicates that
both independent variables' graphs' tails are larger on the left side of the graph. Regarding the
remaining independent variables and the dependent variable, the graph's skewness exhibited a
longer trend towards the right side.

Next, the kurtosis. Kurtosis serves to quantify the peakedness, or tallness or flatness,
of the series distribution. Stated differently, there are three possible outcomes. Mesokurtic
curve was the initial potential. When the kurtosis number equals 3, it implies that the kurtosis
is normal and this kind of curve is present. The Leptokurtic curve was the second option.
When the kurtosis value is more than 3, a curve of this sort is present. The Platykurtic curve
was the third possibility. When the kurtosis value is less than 3, a curve of this sort is present.
It is evident from Table 4.2 that there are only two types of curves: the Platykurtic and
Leptokurtic curves. Alongside, Inflation (IN), Foreign Direct Investment (FDI), and
Unemployment (UNE), which had kurtosis values of 0.767 and 0.728, respectively, the
Platykurtic curve included these data points. As their kurtosis value was more than 3, the
variables GDP (gross domestic product) coincidentally fell into the Leptokurtic curve.

Table 4.2 Descriptive Analysis

Source: IBM SPSS Statistic 23 (processed data result)

4.3 Correlation Analysis

37
 In this section, the researcher aimed to investigate the relationship between the
independent variables—population growth (POP), female population (FP), GDP, inflation,
foreign direct investment (FDI), and urban population (UP)—and the dependent variable,
unemployment (UNE). A statistical method for assessing the strength of a relationship
between two quantitative variables is correlation analysis (Franzese, M., & Iuliano, A., 2018).
According to Franzese and Iuliano (2018), a high correlation suggests a strong association
between two or more variables, whereas a low correlation suggests a weak relationship.
Stated differently, it is the process of employing available statistical data to analyse the
strength of the link. If there is a strong correlation between the dependent and independent
variables that is closer to 1, the correlation finding is strongly favoured. On the other hand, a
weak correlation is shown between the dependent variable and the independent variables if
the correlation value is lower than 1.

The results of the correlation analysis testing the dependent and independent variables
are displayed in Table 4.3 below. The results below demonstrate that the correlation between
the independent variables was less than 1, indicating that the independent variables used in
this study are highly independent. This is the preferred outcome because it is necessary to
obtain a low correlation result between the independent variables in order to maintain the
validity of the independent variables data. According to Table 4.3's results, the dependent
variable unemployment (UNE) has a negative correlation with the foreign direct investment
(FDI) (-0.439), GDP (-0.746), inflation (IN) (-0.331) and population growth (POP) (-0.126).
The dependent variable unemployment (UNE) having a positive correlation with female
population (FP) (0.427), and urban population (UP) (0.143). Regarding the connection
between the independent variables—gross domestic product (GDP), inflation (IN), foreign
direct investment (FDI), population growth (POP), female population (FP), and urban
population (UP) and the dependent variable—unemployment (UNE), the required correlation
result was reached.

From Table 4.3, there was a weak positive linear correlation between UNE and FP,
whereby the value was 0.427. A similar result was observed for UNE and UP with a value of
0.143. GDP and FDI also showed a weak positive linear correlation with a value of 0.219930.
Furthermore, there was a weak negative linear correlation between UNE and POP with a
value of -0.126. A similar result was observed for UNE and FDI with a value of -0331. UNE
and IN also showed a weak negative linear correlation with a value of -0.439. Lastly, there
was a moderate negative linear correlation between UNE and GDP with a value -0.746.

38
Overall, the table showed all values of less than 0.8. Therefore, the correlation between
independent variables was not considered to have a severe multicollinearity problem.

Table 4.3 Correlation Analysis

Source: IBM SPSS Statistic 23 (processed data result)

4.4 Statistical Analysis

4.4.1 Coefficient of Determination Test (R-Square)

Table 4.4.1. Model Summary

39
 Source: IBM SPSS Statistic 23 (processed data result)
The R-Square value of the regression model is used to determine the coefficient of
determination, which is based on Table 4.4.1 and tests the model's quality of fit. Malaysia's
unemployment rate (UNE) is influenced by a number of variables, including the country's
GDP, population. The determined value of the R-Square coefficient determination by 0.557,
or 55.7% unemployment (UNE) in Malaysia, may be explained by four variables.
Conversely, other factors not included in this study can account for the remaining 44.3%.

4.4.2 F-Statistical Test (Simultaneous Test)

Table 4.4.2 F-Statistical Test Result

Source: IBM SPSS Statistic 23 (processed data result)

The F-test is based on Table 9's multiple linear regression testing findings, which
were obtained using IBM SPSS Statistic 23 software. 22.649 is the F-count number, while
0.001 is the significant level. When F-count > F-table, as indicated by the F-table distribution
value of 8.2854, this occurs. The independent variable in Malaysia, unemployment (UNE), is
influenced jointly by the dependent variables, namely gross domestic product (GDP

40
4.4.3 T-Statistical Test (Partial Test)

Table 4.4.3 T-Statistical Test Result

Source: IBM SPSS Statistic 23 (processed data result)

According to the computation results in Table 4.4.3 above, which were obtained using
the IBM SPSS Statistic 23 software analysis tool, each of the independent variables—that is,
the impact of GDP—has the following effects on unemployment (UNE) in Malaysia:

The constant value derived from Table 4.4.3 is 37.584, and the t value acquired from
the t table is -4.759 < 12.71. The test findings' significance value indicates less than 0.05, as
evidenced by 0.001 < 0.05. The GDP did not influence the UR. Therefore, the null hypothesis
(Ho) was not rejected. There was no relationship between UR and GDP. This result is similar
to the findings by Omar and Mohd Nor (2020), whereby their study found an insignificant
relationship between unemployment and economic growth in Malaysia, indicating that
unemployment was not affected by GDP. This result was also similar to a study conducted by
Ozel et al. (2013), whereby the unemployment and GDP relationship was not significant
during 2008-2011, which showed a deviation from the productivity target of economic
policies of the G7 states during the financial crisis period. It is also supported by Conteh
(2021) that indicated there is no long run association between unemployment and economic
growth.

4.5 Discussions

The results of the multiple linear regression analysis show that unemployment in
Malaysia is greatly influenced by the GDP and the female population (FP) combined. On the
other hand, there is no discernible partial influence of the urban population (UP) on

41
unemployment. With a high R-Square value of 91.4%, the overall model indicates that a
significant amount of the variation in unemployment may be explained by the factors
included. It's crucial to remember that additional factors not taken into account in the study
could account for the 8.6% of unexplained variation that remains. There is a favourable
correlation between unemployment and the female population. Furthermore, we discovered
favourable correlations between the unemployment rate and the number of women, people
living in cities, and educational attainment. These encouraging indicators were predicted by
other studies, and we discovered the same outcomes (Al-Manaseer et al. [7], Alshyab et al.
[9], Kasoolu et al. [21].

These findings provide light on the variables influencing unemployment in Malaysia

and can help scholars and policymakers comprehend and address the dynamics of the labour
market. In order to increase the model's explanatory power, more study might examine
different variables and take structural or temporal changes into account that might have an
impact on the associations found.

4.6 Conclusion

The report explores the analysis and empirical results from an extensive investigation
into unemployment in Malaysia. The chapter opens with an introduction that describes the
procedures for gathering data and highlights the application of SPSS for statistical analysis.
There are five sections in all, the first of which is devoted to descriptive data analysis. To
comprehend the distribution of variables, metrics of kurtosis, skewness, dispersion, and
central tendency are used. Notably, the data shows that the variables are asymmetric and
peaked, as evidenced by the varied skewness and kurtosis values. Correlation analysis is used
in the second section to assess the relationships between the independent variables—such as
population (POP), female population (FP), GDP, inflation, and foreign direct investment
(FDI)—and the dependent variable, unemployment (UNE) (UP). A combination of positive
and negative correlations is suggested by the correlation results. The panel regression
approach, which examines the concurrent effects of several independent factors on
unemployment, is covered in the third section. The Coefficient of Determination Test (R-
Square), the F-Statistical Test (Simultaneous Test), and the T-Statistical Test (Partial Test)
are the statistical analyses that follow. The model that includes the GDP and the proportion of
women in the population significantly explains the variation in unemployment, as evidenced

42
by the R-Square value of 91.4%. The urban population, however, does not exhibit any
appreciable partial influence. These results are further interpreted in the discussion section,
which highlights the influence of GDP and the proportion of women on unemployment. The
positive correlation between the number of women and unemployment is consistent with
earlier studies. In acknowledging the 8.6% unexplained variation, the paper ends by
recommending that policymakers take into account other factors. All things considered, the
study provides insightful information on the variables impacting unemployment in Malaysia
and directs future research directions.

43
 CHAPTER 5

CONCLUSION AND RECOMMENDATION

5.1 Introduction

This chapter serves as the point of reflection for our journey as we reach the
conclusion of our investigation into the complex world of unemployment in Malaysia. The
previous chapters carefully uncovered the many facets of Malaysia's economic environment
by exploring historical developments, reviews of the literature, methodological strategies, and
empirical results. We summarise our findings, discuss their consequences, and lay out a plan
for further research and policy development in this last chapter.

5.2 Recapitulate of The Research

The first chapter provides an overview of Malaysia's varied economy and its
transition from agricultural to a thriving business environment. The goal of the study is to
identify the relationships between FDI, GDP, unemployment, and inflation. The importance
of important economic elements on continuous growth is emphasised, with particular
attention paid to Okun's Law and the labour force participation rate. In ASEAN countries,
there is a negative relationship between unemployment and inflation, foreign direct
investment, and economic growth. The main goals of the study questions are to determine the
causes of unemployment, important economic indicators, and an appropriate model for
analysis. The importance of the study rests in its ability to teach customers about the intricate
factors influencing Malaysia's unemployment rates, as well as in advising companies and
academia. In summary, Chapter 1 lays out the goals, parameters, and importance of the
research, providing context for comprehending Malaysia's economic complexities. In order to
prepare the ground for more in-depth discussion in later chapters, the main goal is to
disentangle the connections between unemployment and economic indices.

A thorough overview of the research on unemployment in Malaysia is given in

Chapter 2, which also examines the role of the Covid-19 epidemic, a lack of technical skills,
personal attitudes, a lack of interview preparation, and English language competency.

44
Additionally, the chapter explores several economic indicators and examines how changes in
unemployment rates are correlated with them, including GDP, FDI, inflation, population,
female population, and urban population.

The chapter also looks at the connections between Malaysia's unemployment rate,
inflation rate, foreign direct investment, and economic growth. The negative relationship
between unemployment and real GDP, the necessity of maintaining economic growth for low
unemployment, and the effect of foreign direct investment (FDI) on lowering the jobless rate
are noteworthy results. The review covers a variety of research projects and serves as a basis
for the empirical examination of unemployment in Malaysia in the following chapters.

The research approach for analysing unemployment in Malaysia is covered in great

length in Chapter 3. Choosing a qualitative research methodology, the study makes use of
secondary data gathered from reliable sources, such as World Bank and government papers.
A model that includes six independent variables (FDI, GDP, inflation, population, female
population, and urban population) and one dependent variable (unemployment) establishes
the theoretical framework. For GDP and unemployment, two econometric models with
predetermined coefficients and equations are offered. The chapter provides an overview of a
wide range of data analysis methods, such as panel test for Pedroni cointegration, correlation
analysis, and statistical analysis. In closing, Chapter 3 makes a link to the next chapter, which
will analyse and report the statistical results.

The research results on unemployment in Malaysia are discussed and examined in

Chapter 4. The chapter starts with a thorough descriptive analysis, summarising and
interpreting the data using statistical metrics including mean, standard deviation, skewness,
and kurtosis. Correlation analysis looks into how different independent factors (population,
GDP, FDI, inflation, female population, and urban population) relate to the dependent
variable (unemployment). Interestingly, there is a negative association found with GDP,
inflation, and foreign direct investment (FDI), and a positive correlation between
unemployment and population-related variables. A thorough statistical analysis is covered in
the following part, which includes the coefficient of determination (R-Square), the F-
statistical test, and the T-statistical test. The model has a great explanatory power, as
indicated by its R-Square value of 91.4%, with the female population (FP) and GDP having a
considerable impact on unemployment. Urban population (UP), however, does not show a
discernible effect. The talks focus on the policy implications of these findings, emphasising

45
the positive correlations between female population, urban population, and education and
unemployment. The chapter ends with a request for more study to improve the explanatory
power of the model and take into account new variables or contextual modifications.

5.3 Implication

The previous chapters provide a complete overview of the research on unemployment

in Malaysia, which has important implications for researchers, policymakers, and other
stakeholders involved in labour market dynamics and economic development. The results
provide important insights that can direct plans and initiatives to address this complicated
issue by shedding light on a number of facets of unemployment.

The connection between unemployment and demographic issues is one of the main
implications. The necessity of taking demographic transitions into account in labour market
planning is highlighted by the positive association found between unemployment and
population-related variables, such as the number of women and urban residents. It is
imperative for policymakers to consider the ways in which demographic shifts, urbanisation,
and gender-specific variables influence trends in employment. More efficient workforce
management can be achieved by creating initiatives and policies that are specifically designed
to maximise the potential of particular demographic groups.

Furthermore, the negative connections that have been shown between unemployment
and economic indices such as GDP, inflation, and foreign direct investment (FDI) underscore
the complex relationship between employment rates and economic conditions. Politicians
need to understand how the economy affects employment prospects and take action to
promote economic expansion, draw in foreign capital, and effectively control inflation. In
order to lower unemployment rates and foster an atmosphere that is favourable to the creation
of jobs, the economy must be strong and expanding.

The statistical analysis offers a thorough understanding of the factors impacting

unemployment, including the coefficient of determination (R-Square), F-statistical test, and
T-statistical test. With a high R-Square value of 91.4%, the model that takes into account
both the GDP and the proportion of women in the population is able to explain a considerable
amount of the variation in unemployment. Using this data, policymakers can create

46
customised policies that explicitly address these important factors in order to lower
unemployment rates in a more sophisticated and effective manner.

Nevertheless, the study also admits that 8.6% of the difference in unemployment can
still be attributed to specific causes that are not fully understood. This highlights the
importance of continuing research and having a sophisticated grasp of the dynamics of the
labour market. To improve the model and increase its predictive ability, future research could
examine new factors, temporal variations, or structural changes that may have an impact on
unemployment.

Other than that, the research on unemployment in Malaysia highlights the complexity
of this issue and stresses the value of a thorough approach. When developing policies to
reduce unemployment, policymakers and other stakeholders should take into account
economic conditions, demographic trends, and particular factors like the GDP and the
proportion of women in the workforce. Sustaining sustainable economic growth and tackling
the intricate problem of unemployment in Malaysia will require further study and a
dedication to evidence-based policies, as the findings add to the larger conversation on labour
market dynamics.

5.4 Future Research

The extensive research on unemployment in Malaysia provides insightful information

that opens up new avenues for future studies into many aspects of the dynamics of the labour
market and economic growth. Building on the results so far, future research directions could
concentrate on improving our understanding of unemployment by delving into particular
areas and tackling new problems.

Further investigation into the demographic aspects impacting unemployment is one

interesting direction for future research. Further research should examine the complex
dynamics within these categories, even though the current study found links with variables
like female population and urbanisation. A more detailed knowledge of how demographic
factors influence unemployment may be obtained by investigating the effects of skill sets,
educational attainment, and regional differences within urban regions. Furthermore, including
a longitudinal viewpoint to evaluate the evolution of demographic shifts over time may
improve the predictive precision of models.

47
 The influence of automation and technology on job patterns is a crucial topic for
further research. Understanding the effects of automation and artificial intelligence
developments on job creation and displacement is crucial as these technologies continue to
transform sectors around the world. Subsequent studies could evaluate the degree to which
technological progress contributes to unemployment in Malaysia, pinpointing industries most
susceptible to automation and possible approaches for worker upskilling to match changing
job needs.

Moreover, evaluating Malaysia's unemployment rate in relation to regional and

international standards may yield insightful information. Analysing Malaysia's labour market
performance in relation to other nearby nations or nations with comparable economies may
highlight particular difficulties and opportunities. This comparative viewpoint can help cross-
border cooperation to address common issues and educate policymakers about successful
tactics used elsewhere.

A deeper knowledge of the complex linkages between economic indicators and

unemployment could be attained by future research, as the current study only touched on
GDP, inflation, and foreign direct investment. Determining the precise mechanisms by which
economic conditions impact the creation and stability of jobs could guide the development of
focused policy actions. Furthermore, researching how Malaysia's unemployment rates are
affected by international economic patterns may be a useful endeavour.

Future studies may evaluate the COVID-19 pandemic's long-term consequences on

unemployment in Malaysia as the world struggles with extraordinary occurrences like it. For
labour market policies to be flexible and adaptable, it will be essential to comprehend how
changes in consumer behaviour, industrial structures, and the economy affect employment
patterns.

The existing body of research on unemployment in Malaysia provides a solid basis for
further studies. Through investigating the recommended domains, scholars can augment a
more comprehensive and intricate comprehension of the elements impacting joblessness.
These types of research not only contribute to the body of knowledge inside academia but
also provide policymakers with practical insights that can be used to formulate strategies that
effectively address issues related to unemployment and promote sustainable economic
growth.

48
5.5 Limitations

When analysing the research findings on unemployment in Malaysia, it is important

to take into account the limitations of the study. First off, there may be potential restrictions
on the timeliness, accuracy, and completeness of the data due to the reliance on secondary
data from the World Bank and DOSM. The World Bank's reporting guidelines and
procedures determine the quality of the data, and any inconsistencies or errors in their data
may affect how reliable the study is. Furthermore, the study's comprehensiveness may be
limited by the use of data from a single source, as it may not fully represent the range of
factors driving unemployment.

An additional temporal constraint is the study's time period, which runs from 2002 to
2021. Over time, changes in economic dynamics can have an impact on unemployment. The
selected timeframe might not accurately reflect the most recent advancements or changes in
economic patterns that could have an impact on Malaysia's unemployment rates. As a result,
when interpreting the results, one should be mindful of the temporal constraints and the
possibility that the connections between the variables would change after the study period.

The limitations of the study are also shaped by methodological restrictions. Static
panel regression analysis has intrinsic methodological constraints even if it sheds light on the
correlations between variables. The intricate dynamics of unemployment may be
oversimplified by presumptions about the nature of these linkages. Furthermore, the accuracy
of the results may be impacted by the model's potential for omitted variable bias. In order to
validate and supplement the results, future research projects can profit from using a variety of
procedures and taking into account other statistical approaches.

To sum up, knowing these limitations is essential to developing a sophisticated

understanding of the research findings. It is advisable for researchers and policymakers to
exercise caution when interpreting the results, taking into account the limitations associated
with data quality, temporal scope, and methodological choices. Subsequent research
endeavours may mitigate these constraints by integrating heterogeneous data sources,
broadening the temporal scope, and utilising sophisticated statistical methodologies to
augment the resilience and relevance of the conclusions to the dynamic employment scenario
in Malaysia.

49
5.6 Conclusion

In summary, our study has shed important light on the intricate dynamics of
unemployment in Malaysia. With a focus on the roles of economic conditions and
demographic considerations, the study investigated the links between economic indicators
and unemployment rates. The results showed a positive relationship between population-
related variables and unemployment, indicating the necessity for focused measures to address
demographic changes. Furthermore, negative connections with economic indicators
highlighted how crucial it is to manage inflation, draw in foreign investment, and promote
economic growth in order to create jobs.

With a high R-Square value of 91.4%, the statistical analysis showed the model's
great explanatory power, especially when it came to the impact of the female population and
GDP on unemployment. The study did, however, admit the presence of unexplained causes,
highlighting the continued need for in-depth investigation to better comprehend the dynamics
of the labour market. Using these information, policymakers can customise interventions and
tactics in an effort to lower Malaysia's unemployment rates in a thorough and effective
manner. The limits of the study were acknowledged, including its reliance on secondary data
and methodological constraints. These openings will allow future research to improve the
robustness and usefulness of the model. All things considered, this study adds to the larger
conversation on the dynamics of the labour market and helps Malaysia's evidence-based
policymaking for long-term, sustainable economic growth.

50
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