The Relationship Between Economic Growth and Unemployment
- Theoretical framework:
It can be seen that GDP is a factor that helps investors identify potential countries to make the right
investment decisions as well as one of the important factors that helps the government to make
monetary policies suitable for the national economy. GDP growth is often accompanied by the
development of industries, services, and agriculture, creating conditions for growth and diversification in
the labor force. On the contrary, a decrease in GDP can lead to economic recession, inflation,
unemployment, currency devaluation, etc.
Unemployment is not simply an economic phenomenon, but also the result of many complex factors.
One of the main causes is economic fluctuations, changes in the structure of industries and automation
can also cause unemployment, when some traditional industries become unnecessary.
In addition, factors such as education, labor skills, and labor policies also play an important role in
unemployment. When workers do not have enough skills to work in a specific industry, they will have
difficulty finding a job. In fact, the labor market is facing special challenges due to the impact of the 4.0
industrial revolution and global changes.
According to the General Statistics Office of Vietnam, the unemployment rate in Vietnam in 2022 is 2.5%.
However, according to the report of the Department of Employment (Ministry of Labor, War Invalids and
Social Affairs) in 2022, the number of people receiving unemployment benefits increased by 975,333
people, an increase of 27.6% compared to 2021.
- Factors influencing the relationship
The unemployment rate does not depend on a single factor but is influenced by many factors, including
GDP. When an economy has a high growth rate, it is important to use labor resources efficiently. Rapid
growth is accompanied by a decrease in unemployment. However, there is a correlation between GDP
and allocation capacity. If GDP increases too quickly, it can lead to misallocation and price increases,
affecting the labor market.
The relationship between unemployment and GDP is described by Okun's Law, according to which, for
every 1% growth, the rate of GDP failure decreases by about 2%. However, this relationship is not simple
and depends on many factors, including the government's economic policies, the labor market situation,
and the global economic situation.
The correlation between GDP and unemployment rate plays an important role in determining the
development of a country. This link is not only unidirectional but also compatible. Strong GDP creates job
opportunities, while high-quality labor power also contributes to GDP growth.
This impact is not only related to economic scale but also related to the quality of life and sustainable
development of the Firm. The results from the General Statistics Office of Vietnam and the Ministry of
Labor, Invalids and Social Affairs in 2022 also emphasize the importance of this relationship in the
context of the labor market facing primitive methods from the 4.0 industrial revolution and global
change.
Measures to cope with inflation and economic growth
To cope with inflation and at the same time promote economic growth, the State needs to implement
appropriate monetary and fiscal policies, in line with the market context. The Central Bank can adjust
interest rates to control borrowing demand, in order to limit inflation without excessively inhibiting
economic growth.
At the same time, the government needs to consider increasing taxes or reducing public spending to
reduce demand, but also needs to encourage investment in important areas such as infrastructure,
technology and education to improve productivity. In addition, an open trade policy is also important, to
increase the supply of goods and promote imports and exports. In addition, building trust for businesses
and consumers through transparent and stable policies is also important in maintaining economic
growth.
It can be said that the correlation between GDP and inflation is an important factor reflecting how
economic policy decisions affect the overall health of the economy. Therefore, each country must adopt
smart monetary and fiscal policies, in accordance with the market economy, to promote sustainable
economic growth and maintain macroeconomic stability.
Policy implications
Promote Inclusive Economic Growth
Enhance Education and Skill Development
Strengthen Labor Market Policies
Foster Entrepreneurship and SMEs
Invest in High-Growth Sectors
Address Regional Disparities.
Leverage Technology and Innovation
Improve Urban Planning
Strengthen Social Dialogue and Partnerships
Monitor and Evaluate Employment Policies
