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Vol. 3 No. 2 (2026): April

Copyright (c) 2026 Bashir Ahmad Niazmal, Sayed Ahmad Sadaat

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This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.

Macroeconomic Factors Affecting the Level of Unemployment in Malaysia

https://doi.org/10.62810/jssh.v3i2.68
Sayed Ahmad Sadaat
Kandahar University, Department of National Economics, Faculty of Economics, Kandahar, Afghanistan
https://orcid.org/0009-0003-5990-3861
Bashir Ahmad Niazmal
Kandahar University, Department of National Economics, Faculty of Economics, Kandahar, Afghanistan

Corresponding Author(s) : Sayed Ahmad Sadaat

sayed_ahmadafg@yahoo.com

Journal of Social Sciences and Humanities, Vol. 3 No. 2 (2026): April

Abstract

Reducing unemployment is one of the essential macroeconomic objectives, while many countries find it difficult to manage it. The current study examines annual time-series data from 1980 to 2022 to determine how unemployment in Malaysia is affected by key macroeconomic factors, including economic growth, inflation, foreign direct investment (FDI), and population growth. The Autoregressive Distributed Lag (ARDL) technique is used in the study to examine both short- and long-term dynamics among the variables. According to the empirical findings, there is a negative correlation between GDP growth and unemployment: for every 1% increase in GDP, the unemployment rate decreases by 0.099%. Although the effect's magnitude remains low due to structural limitations and labor market inefficiencies, this result confirms Okun's Law and indicates that economic expansion helps create jobs. Likewise, the results indicate that inflation has a statistically significant negative effect on unemployment, which confirms the validity of the Phillips Curve hypothesis. It is suggested that moderate inflation could boost employment and aggregate demand, as a 1% increase in inflation lowers unemployment by 0.521%. On the other hand, the findings indicate that both population growth and FDI inflows have a significant positive impact on the unemployment rate, suggesting that foreign investment in Malaysia cannot be sufficiently labor-intensive and that the labor market remains under pressure from population growth. These results underscore the importance of creating inclusive growth plans that balance labor market expansion and macroeconomic stability. Promoting labor-intensive businesses, enhancing human capital, and directing foreign direct investment (FDI) into profitable industries that create jobs should be the main priorities of policymakers.

Keywords

ARDL FDI Malaysia Okun’s Law Phillips Curve Population Unemployment
Sadaat, S. A., & Niazmal, B. A. (2026). Macroeconomic Factors Affecting the Level of Unemployment in Malaysia. Journal of Social Sciences and Humanities, 3(2), 516–541. https://doi.org/10.62810/jssh.v3i2.68
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Received 2025-03-09
Accepted 2026-04-28
Published 2026-04-30
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