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Advances in Social Sciences Research Journal – Vol. 11, No. 2.2
Publication Date: February 25, 2024
DOI:10.14738/assrj.112.2.16398.
Ma’in, M., Isa, S. S. M., Mustaza, N. F. N., & Johanis, N. A. A. (2024). Youth Unemployment and Macroeconomic Determinants in
Malaysia. Advances in Social Sciences Research Journal, 11(2.2). 289-298.
Services for Science and Education – United Kingdom
Youth Unemployment and Macroeconomic Determinants in
Malaysia
Masturan Ma’in
Corresponding author: maszan@uitm.edu.my
Faculty of Business and Management, Universiti
Teknologi MARA, 42300, Puncak Alam, Selangor, Malaysia
Siti Sarah Mat Isa
Faculty of Business and Management, Melaka International
College of Science and Technology, 75300, Melaka, Malaysia
Nur Fatihah Nabilah Mustaza
Faculty of Business and Management, Universiti
Teknologi MARA, 42300, Puncak Alam, Selangor, Malaysia
Nur Aina Athirah Mohd Johanis
Faculty of Business and Management, Universiti
Teknologi MARA, 42300, Puncak Alam, Selangor, Malaysia
ABSTRACT
As youth unemployment has been gradually increasing over the years, it is crucial
to investigate which economic indicators that significantly contributed in affecting
the Malaysia’s youth unemployment rate. In this study, 30 annual data observations
from 1991 until 2020 were used to investigate the empirical relationship between
youth unemployment rate (YUR) and gross domestic product (GDP), foreign direct
investment (FDI), inflation rate (INFR), gross domestic savings (GDS) and trade
(TRD) through multiple linear regression analysis using the ordinary least square
method. It is hypothesised that these selected macroeconomic determinants have
an effect in influencing the Malaysia’s unemployment amongst youth. The results
showed that there is positive significant relationship between youth
unemployment rate and trade. Whereas, negative significant relationship was
found between youth unemployment rate and the GDP as well as GDS. In contrary,
there is no significant relationship exists between YUR with FDI and inflation rate.
Keywords: Youth Unemployment, Ordinary Least Square, Multiple Linear Regression,
Macroeconomics Determinants, Malaysia
INTRODUCTION
In this modern era, most adolescents are facing challenges in their life, elevated expectations
and demands imposed by family and community, as well as major uncertainties as they enter
the next stage of life in quest of productive job with financial independence. This experience
may be distressing for some people, especially if they are burdened by educational loans or
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Advances in Social Sciences Research Journal (ASSRJ) Vol. 11, Issue 2.2, February-2024
Services for Science and Education – United Kingdom
have a tight family financial state. Under these circumstances, the fear of unemployment, actual
unemployment, or even underemployment may increase adolescents’ anxieties and lead to
disillusionment, which, at worst, may contribute to their departure from economic
participation. Besides, youth unemployment has also been shown to have long-term effects on
two matters which are employment stability and income, due to the affected individuals begin
with weaker early-career credentials and demonstrate lower confidence and resilience in
dealing with labour market opportunities and setbacks throughout their working lives.
Hence, unemployment amongst adolescents could have cause a particularly negative economic
impact if it is relatively high or increasing. Unemployed youth would be unable to successfully
contribute to national economic development, especially at this critical stage of economic life
when their tendency to consume is greatest. In other words, if young unemployment rates are
excessively high, targeted policies to enhance youth employment may have a multiplier effect
on the economy by increasing consumer demand and tax revenue.
During 2018, Malaysia's youth unemployment rate is 10.9% which was lower than the regional
average of 12.2% for Southeast Asia and the Pacific (Cheng & Mohamad, 2020). Additionally,
young unemployment reaching 10.5% in 2019 where Malaysia follows the regional pattern,
more than six times the adult rate of 1.7% Over the last decade, the ratio of youth
unemployment to the national average has risen. In prior downturns, youth lost jobs
become more severely than the general population, with greater unemployment rates during
the recessions of 1985-86, 1997-98, and 2008-09 (Ni et al., 2021). The economic consequences
of the COVID-19 outbreak are likely to be particularly severe for young workers.
Due to Malaysia’s youth unemployment have cause effects on the economic growth, this study
is conducted to examine the relationship between the macroeconomic determinants (GDP, FDI,
Inflation, GDS and Trade) and youth unemployment. Many empirical studies have inconclusive
findings regarding the youth unemployment and macroeconomic determinants. Thus, this
study attempted to seek the macroeconomic determinants on youth unemployment in
Malaysia. A multiple regression method is applied using the ordinary least square (OLS) method
to fill this gap.
LITERATURE REVIEW
Since there is ample evidence that youth unemployment is particularly high in industrialised
nations, underlying significance between these variables is essential (ILMIA, 2017).
Additionally, youths are regarded as a very important resource for the economy because they
will be the ones to significantly contribute in improving the upcoming national economic
development.
Based on the theoretical findings, there are different types of theory which explain the
relationship between the youth unemployment and the macroeconomic indicators (GDP, FDI,
Inflation, GDS and Trade). The Okun's Law, which describes the theoretical statement of the
output and unemployment, is a strongly held view in macroeconomics theory because it
predicts that an increase in GDP will reduce unemployment (Banda et al., 2016). It is also an
empirical fact that the unemployment rate and output growth are inversely connected.
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Ma’in, M., Isa, S. S. M., Mustaza, N. F. N., & Johanis, N. A. A. (2024). Youth Unemployment and Macroeconomic Determinants in Malaysia. Advances
in Social Sciences Research Journal, 11(2.2). 289-298.
URL: http://dx.doi.org/10.14738/assrj.112.2.16398
In Keynesian Theory, it was argued that the point of economic equilibrium comes when the
aggregate demand equals to the aggregate expenditure. When aggregate demand falls below
aggregate expenditure, there is unemployment because long-term output will not be consumed
by consumers. As a result, foreign direct investment benefits the country's economic activities
(Nasution et al., 2021). On the other side, the relationship between inflation and youth
unemployment are negatively related in Philips’s curve (1958). According to the Phillips curve,
high inflation could lead to low unemployment and high unemployment could lead to high
inflation (Sköld & Kaleb, 2020).
For the General Theory of Employment, Interest, and Money, a rise in savings rates should lead
to higher unemployment rates because of the fall in consumption, but in the long term, the
effects of investment may allow for a decline in unemployment (Ramudo et al., 2014). As part
of the Heckscher–Ohlin theory, in a small open economy with a minimum wage, the 2x2
Heckscher-Ohlin model developed by Brecher (1974) showed that trade openness has an effect
on welfare and unemployment that relies on the relative factor endowments (Fugazza et al.,
2014). In addition, the Heckscher-Ohlin theory of comparative advantage was supported by
studies showing a negative impact of trade openness on unemployment in comparable
circumstances. With that, this highlights the importance of trade in affecting the unemployment
rate (Anjum & Perviz, 2016).
According to empirical findings, GDP can be negatively significant or significant in explaining
youth unemployment rate in the study by Fung and Nga (2022), Ni et al. (2021), Hoxhaj (2017),
whereas no significant was found in the study by Ali and Almula-dhanoon (2021). By using
different methods of regression analysis, it was revealed by Ni et al. (2021), Michael and Geetha
(2020), Monari et al. (2020) that there exist significant relationships of FDI and youth
unemployment. However, there are also studies that reported insignificant relationship exists
between the FDI and youth unemployment by Mkombe et al. (2021) in SADC countries,
Anyanwu (2013) in Africa and Caporale and Gil-Alana (2014) in Europe.
The next variable is inflation, whereby the study was performed by Michael and Geetha (2020),
Hasan and Sasana (2020), they discovered that the inflation is negatively significant in
explaining the influence of youth unemployment. However, in the study by Fung and Nga
(2022), it showed that the inflation has negative significant in the short run of youth
unemployment but positively significant in the long run. Nevertheless, a study by Ni et al.
(2021) revealed that there is insignificant relationship exists between inflation and the youth
unemployment rate.
The other variable for empirical findings is GDS (gross domestic savings). A study by Bayrak
and Tatli (2018), Arent (2012) found that there is negative relationship between youth
unemployment and gross domestic savings, while there is positive relationship between youth
unemployment and gross domestic savings in the study by Mody et al. (2012). For trade, it was
positively significant in explaining the relationship exist between youth unemployment and
trade in studies by Harrison and Revenga (1998), Carrère et al. (2020). Moreover, the negative
significant was discovered by Anyanwu (2014) on the impact of trade towards youth
unemployment.