The Nexus of Unemployment and Economic Growth
Wassim, Nathalie, and Imad; three individuals who were pushed out of work by the deteriorating economic conditions in Lebanon. Tens of thousands of people like them have been suffering daily for the past 3 years living from paycheck to paycheck up until they were forced out of it (work). Lebanon has witnessed what no other country has. Unemployment rates doubled in only a decade, COVID-19 took out thousands, and inflation bankrupted hundreds of businesses.
According to Okun, a very low or negative growth in GDP leads to a rise in unemployment. By observing this visual, we can see how unemployment skyrocketed while GDP growth took a deep dive. Comparing the years 2008 and 2009, GDP growth increased 10.23 percentage points while unemployment rates decreased by 6.35 percentage points. We can conclude an inverse correlation between GDP growth and unemployment. Another observation is that between years 2020 and 2021, GDP growth increased by almost 15 percentage points. Despite this growth, unemployment remains significantly high at 14.49 percentage points. Importantly, this project is action-oriented in that it shows the nexus between unemployment and GDP growth #SDG8, which are intrinsic to an economy, from more “policy-driven” factors that can be addressed, improved or mitigated.
Here, a question rises? What is the cause for the disproportionality between GDP growth and unemployment rates? There are 3 possible causes for its inverse relation:
• The decrease of Foreign Direct Investment (FDI) which reached 3.98 percentage points in 2019 due to the lack of security and political tension
• Another possible cause is the low diversification in economic sectors due to scarcity of resources. Looking at this visual, we can see the focus of employment shift mainly to the service industry which witnessed an increase by 65.10 percentage points while the agricultural and industrial sectors are left behind increasing by under 30 percentage points in 2019.
• The third and final possible cause is the over-dependence on food and fuel imports. Lebanon possesses the second highest food and energy imports in 2019.
What should be done?
Drawing upon decades of empirical literature on drivers and predictors of lack of growth, this project proves Okun’s law using visualizations for the case of Lebanon. According to International Labor Organization (ILO), not just growth, but quality of growth is the key anchor in the SDGs 2030 agenda. Sustainable economic growth will require societies to create the conditions that allow people to have quality jobs that stimulate the economy while not harming the environment.
1. Creating greater opportunities for women and men to secure decent employment and income. Closing the employment gap is at the heart of the decent work agenda, this can be through promoting voluntary private initiatives and corporate social responsibility.
2. Instating policies to enhance knowledge, skills and employability for men and women since gender remains a source of labor market inequalities and inadequately utilized human resources. Women continue to be employed in a narrower range of occupations than men and to be concentrated in lower-paid, insecure, and unprotected jobs.
3. Promoting employment through reconstruction and employment-intensive investment.
4. Increasing access to financial services to manage incomes, accumulate assets and make productive investments.
Findings and Recommendations
A shift in economic thinking and planning towards economic structural transformation is necessary for the Arab region to develop on SDG 8 (ESCWA, 2021). The post-pandemic SDG agenda must leverage the lessons learnt to reinforce national social safety nets and employment policies. This strengthens economic resilience and allows developing countries to absorb shocks. A continued lack of decent job opportunities, insufficient investments, and under-consumption slows down economic growth. The average growth rate GDP is increasing after the pandemic; however, it still did not reach pre-pandemic levels of growth and developing countries such as Lebanon are moving farther from the 7% growth rate set for 2030. Therefore, as labor productivity decreases driven by low productivity and unemployment rate rises, standards of living decreases and overall economic growth decreases.
Governments must join forces and formulate policies to promote better job opportunities through active labor market programs, corresponding to important SDGs: Economic Growth and Decent Work, as well as Partnerships to Achieve the Goals.
Sustainable economic growth will require societies to create the conditions that allow people to have quality jobs that stimulate the economy while not harming the environment. Job opportunities and decent working conditions are also required for the whole working age population. There needs to be increased access to financial services to manage incomes, accumulate assets and make productive investments. Increased commitments to trade, banking and agriculture infrastructure will also help increase productivity and reduce unemployment levels in the world’s most vulnerable regions.#SDG8 #SDG16
