THE ZAMBIA CATHOLIC UNIVERSITY

FACULTY OF BUSINESS MANAGEMENT

DEPARTMENT OF ECONOMICS

PROPOSED RESEARCH TOPIC: INVESTIGATING THE IMPACT OF

UNEMPLOYMENT RATE ON ECONOMIC GROWTH IN ZAMBIA (2013-2022)

BY: BLESSINGS CHONGO

STUDENT NO.: D21041

SUGGESTED SUPERVISOR: MRS ANNIE CHIME

TABLE OF CONTENTS
 CHAPTER ONE

1.0 INTRODUCTION

The relationship between the economic growth and the unemployment rate was studied by a
Yale Professor Arthur Okun, for the first time in 1962. His research postulated the Okun’s
Law that predicts that 1% increase in the growth rate above its trend rate will lead to only
0.3% reduction in the unemployment rate. Okun estimated two models of his law, the
difference and the gap model, which are considered as original ones. Both, assumed that to
produce more products and services within the economy, more labour is required.

Zambia is one of the African countries with abundant resources, both human and mineral.
However, due to activities such as increased corruption, misappropriation of funds, and
unfavourable government policies, these resources have not been fully utilised. Economic
growth can have a significant impact on unemployment in Zambia that is when the economy
is growing, businesses tend to expand, invest, and hire more workers. This leads to a decrease
in unemployment, as more job opportunities become available. However, the relationship
between economic growth and unemployment is not always straightforward and can be
influenced by a variety of factors.

One of the main factors that affect the impact of unemployment on economic growth in
Zambia is the nature of the growth. If the growth is driven by sectors that are labour-
intensive, such as agriculture or manufacturing, then it is more likely to lead to job creation
and a decrease in unemployment. However, if the growth is concentrated in sectors that are
capital-intensive, such as mining or construction, then it may not lead to a significant increase
in employment.

1.1 BACKGROUND STUDY

Zambia, once a middle-income country, attained its independence in 1964 with its economy
stable. The economic activities included mainly copper mining through which Zambia
sustained its living. After being independent the country was regarded as a prosperous
middle-income country with its Gross National Product (GNP) between $ 760 and 9,360 in
1998 (UNDP 2007). This growth started to decline very quickly because of inflation, low
copper prices, and poor government policies. In 1970, there as a significant economic
downturn which was caused by the decrease in global copper prices and rise in oil prices. In a
bid to create more jobs for the native Zambians, the Zambian government transitioned the
economy from a market system to a command economy system in the late 1960s to early
1970s. This involved greater government participation in economic management, centralized
economic planning and the nationalization of industries. In 1991, the government
reintroduced a market economy, leading to the privatization of more than 220 companies.
However, this privatization resulted in the closure of many industrial sectors, leading to
significant job losses. Unemployment is an increasingly social, economic and political crisis
in Zambia.

Unemployment is not limited to developing nations, it is a problem that affects all countries,
regardless of their level of development. The impact of unemployment is widespread and
affects the entire world, including developed nations. It not only affects individuals and
families but also has significant implications for the overall economic growth and
development of the nation. Understanding the relationship between unemployment and
economic growth is crucial for policymakers and stakeholders to formulate effective
strategies to address this challenge and promote sustainable development.

1.2 STATEMENT OF THE PROBLEM

Persistently high unemployment creates huge costs for both individuals and for the economy
as whole. For instance, it leads to loss of income of the employed people when they lose their
jobs and decline of their living standards, it can also contribute to poverty, robbery in the
society, also unemployment could have a large negative multiplier effect on both local and
regional economy, loss of potential national output (GDP) and it increase budget deficit as
government loses more income tax from labour force (WB, 2010). Silvapulle et al. (2004)
also stressed in his study that the effect of economic growth over unemployment was more
significant.

Unemployment poses a significant challenge to economic development in Zambia, with

implications for social stability, poverty alleviation, and overall well-being. Despite various
policy interventions, the persistence of high unemployment rates underscores the need for a
comprehensive understanding of its impact on economic growth. According to the World
Bank, the unemployment rate in Zambia was 12.7% in 2020, up from 11.9% in 2019.

Despite achieving average annual economic growth of over 4% in the past decade (African
economic outlook 2023), Zambia's unemployment rate has remained stubbornly high,
averaging around 12% over the same period. This suggests that economic growth has not
translated into enough job opportunities for the country's growing population. This is a
significant challenge that needs to be addressed as high unemployment rates can have
negative social and economic consequences. Therefore, the problem to be addressed in this
proposed study is to quantify the relationship between unemployment rate and economic
growth in Zambia and to know if they affect each other in anyway.

1.3 RESEARCH OBJECTIVES

The general objective of this research will be to examine the relationship between the
unemployment rate and economic growth in Zambia between the 2013 and 2022. The
specific objectives of the study are as follows: -

- To analyze the trends and patterns of unemployment in Zambia during the specified period.

- to assess the trends and patterns of economic growth in Zambia during the specified period.

- To investigate the relationship between unemployment rate and economic growth in

Zambia.

- To provide recommendations and policy implications based on the findings of the study.

1.4 RESEARCH HYPOTHESIS

H₀: There is no relationship between the unemployment rate and economic growth in
Zambia.

H₁: There is a relationship between the unemployment rate and economic growth in Zambia.

1.5 SIGNIFICANCE OF THE STUDY

The research will hold significance for various stakeholders such as policymakers,
government agencies, international organizations, researchers, and the general public. By
understanding the dynamics of unemployment and its impact on economic growth,
policymakers can design targeted interventions and policies to address this challenge
effectively. Moreover, insights from this study can inform broader debates on development
economics and contribute to the existing body of knowledge in this field.

1.6 SCOPE OF THE STUDY

The scope of this study will encompass the analysis of the unemployment rate and its
relationship with economic growth in Zambia covering the period from 2013-2022. It will
primarily focus on quantitative data analysis, supplemented by qualitative insights from
existing literature and expert opinions.
1.7 LIMITATIONS

The study may face limitations such as data availability, reliability, potential measurement
errors and the inability to account for all possible factors influencing unemployment and
economic growth.

1.8 DEFINITION OF KEY TERMS

1. Unemployment Rate: The percentage of the labor force that is unemployed and
actively seeking employment, measured using quantitative data.

2. Economic Growth: The increase in the production of goods and services in an

economy over a period of time, quantitatively measured using indicators such as
Gross Domestic Product (GDP).

3. Labor Force: The total number of individuals who are employed or actively seeking
employment, quantitatively measured through surveys or administrative data.

4. GDP (Gross Domestic Product): The monetary value of all final goods and services
produced within a country’s borders in a specific time period, quantitatively measured
using national accounts data.

5. Inflation: The rate at which the general level of prices for goods and services is rising,
quantitatively measured using inflation indices and price indexes.

6. Economic Indicators: Statistical data that provides insights into the overall
performance and health of an economy, such as GDP, inflation rate, and employment
rate, quantitatively measured and analyzed using time-series data and statistical
techniques.

1.9 STRUCTURE OF THE PROPOSAL

The research will be organized into five chapters. Chapter 1 will provide an introduction to
the research topic, outlining its background, significance, objectives, scope, define key terms
and limitations. Chapter 2 will present a comprehensive review of relevant literature on
unemployment, economic growth, and related concepts. Whereas chapter 3 will describe the
research methodology, including data collection, and analytical approaches. Chapter 4 is
where the presentation of findings of the study will be included, followed by a discussion and
interpretation of results. Finally, Chapter 5 will offer conclusions, policy recommendations,
and suggestions for future research directions.

CHAPTER TWO

2.0 LITERATURE REVIEW

This chapter reviews existing literature on the relationship between unemployment and
economic growth, with a focus on Zambia. A thorough examination of scholarly articles,
reports, and empirical studies will provide a comprehensive understanding of the current state
of knowledge in this field in terms of empirical review, theoretical framework and conceptual
framework.

2.1 EMPIRICAL REVIEW

2.1.0 Literature from Developed countries

Issues such as increasing economic growth, reducing unemployment, and improving people's
living standards have emerged as among the most important factors that policymakers and
economists around the world are focusing on. Many empirical studies have been conducted in
developed countries to help investigate the relationship between unemployment rate and
economic growth. Walterskirchen (1999), Swane and Vistrand (2006), Sawtelle (2007), and
YerdelenTatoglu (2008) are among the empirical studies cited.

Walterskirchen (1999) investigated the relationship between economic growth, employment,

and unemployment in Europe. The study looked at the relationship between economic growth
and the labour market. Yerdelen Tatoglu (2011) conducted research on the long and short run
effects of unemployment on economic growth in Europe. The study looked at the movements
of unemployment as well as the short and long run relationships between unemployment and
GDP in European countries.

2.1.1 Literature from Developing Countries

Many scholars and researchers from developing countries have published and documented
quite a number of articles. As a result, this contributes to studies focusing on the consistent
relationship between economic growth and unemployment, as well as their mutual effects in
developing countries. These include Hussain, Siddiqi, and Iqbal (2010), Aktar and Ozturk
(2009), Andrei, Vasile, and Adrian (2010), Messkoub (2008), and Sodipe and Ogunrinola
(2011). Hussain,

2.1.2 Literature from Zambia

The relationship between economic growth and unemployment in Zambia has been a topic of
interest among researchers and policymakers. Over the past decade, Zambia has experienced
positive economic growth, with an average annual growth rate of about 3.6% from 2010 to
2019 (World Bank, 2021). However, unemployment remains high, with an estimated
unemployment rate of around 11.2% in 2019 (Zambia Statistics Agency, 2019). The trend in
economic growth in Zambia has been influenced by several factors, including investments in
infrastructure, mining, and agriculture, as well as macroeconomic stability measures.
However, the growth has been unevenly distributed across sectors and regions, with mining
and construction being the main drivers of growth (World Bank, 2021).

On the other hand, the trend in unemployment in Zambia has remained high, particularly
among the youth and women. The main factors contributing to unemployment in Zambia
include a skills mismatch, lack of access to finance, limited job opportunities in rural areas,
and weak labour market institutions (Zambia Statistics Agency, 2019).

2.1.3 KOWNLEDGE GAP

While there is a large body of literature examining the relationship between economic growth
and unemployment, there are still some gaps in our understanding of this relationship. Some
researchers argue that it is actually changes in the labour market that drive economic growth,
rather than the other way around. Another gap in the literature is the need to better understand
the time lags between changes in economic growth and changes in unemployment. Some
studies have suggested that the relationship may be nonlinear and that there may be time lags
before the benefits of economic growth are fully realized in the labour market. Some
researchers found negative relation which is known as the capitalization effect, others found
positive relationship referred as the creative destruction or coordination failure effect due to
the different countries and locations.

Overall, there is still much to be learned about the relationship between economic growth and
unemployment. Researchers will need to address these gaps in order to gain a more nuanced
understanding of this relationship and develop policies that can effectively promote both
economic growth and full employment.
2.2 THEORETICAL FRAMEWORK

The theoretical framework guides the investigation into the impact of unemployment on
economic growth in Zambia. By drawing on relevant economic theories and models, we aim
to provide a conceptual basis for understanding the relationship between these variables and
elucidate the mechanisms through which unemployment affects overall economic
performance. The research will adopt two theoretical frameworks and these are: -

2.2.0 Okun’s Law

The study will be guided by “Okun’s law” proposed by economist Arthur Okun in (1962)
which presents negative correlation between economic growth and unemployment. Okun
presented two empirical relationships connecting the rate of unemployment to real output,
which have become associated with his name. Okun’s law predicts that growth slowdowns
typically coincide with rising unemployment.

A high rate of unemployment, Okun reasoned, would typically be associated with idle
resources. In such a circumstance, one would expect the actual rate of output to be below its
potential. A very low rate of unemployment would be associated with the reverse scenario.

2.2.1 Neoclassical Growth Model (The Solow Model)

In addition, the study will utilize neoclassical growth theory introduced by Robert Solow
(1956). He said that the output quantity would be determined by the amount of capital, the
amount of labor force (the number of people in the workforce), and the productivity of that
labor. In the introduction to his paper that forms the foundation of neoclassical growth theory,
Robert Solow (1956) criticises the Harrod-Domar model by identifying its assumption of
fixed proportions of labour and capital as the cause of an equilibrium growth that in fact
balances on a knife’s edge (Solow 1956,).

2.3 CONCEPTUAL FRAMEWORK

Conceptual framework for the research outlines the key variables, relationships, and
indicators that will be examined to understand the impact of unemployment on economic
growth in Zambia. The conceptual framework serves as a guide for the empirical analysis
conducted. The primary variables under consideration in this study include the
unemployment rate and economic growth. The unemployment rate will be measured as the
percentage of the labor force without employment, and economic growth Gross Domestic
Product (GDP) growth. The central relationship to be explored is the causal link between the
unemployment rate and economic growth in Zambia. Specifically, we aim to investigate how
fluctuations in the unemployment rate influence GDP growth.

Dependent variable Independent variable

Economic growth Unemployment rate

Let economic growth= y, let unemployment rate=x

Therefore, the regression model will be: -

y=β 0+ β 1 x +ε

Where E is the other variables that may influence economic growth but have been omitted in
the model.
 CHAPTER 3

3.0 METHODOLOGY

This chapter outlines the methodology that will be employed to investigate the impact of the
unemployment rate on economic growth in Zambia. The chapter provides a detailed
description of the research design, data collection methods, variables, and the analytical
techniques that will be used to analyze the data.

3.1 Research Design

This study aims to investigate the impact of the unemployment rate on economic growth. To
achieve this objective, a quantitative research design will be employed. Quantitative research
allows for the systematic analysis of numerical data to establish relationships between
variables.

3.2 Data Collection

The research design will involve the collection of secondary data on the unemployment rate
and economic growth from reliable sources such central statistical office and international
organizations such as the world bank. Additionally, data on other potential control variables
such as inflation rate, investment rate, and government spending may also be collected to
account for their potential effects on economic growth.

3.3 Variables

The key variables for this study are as follows:

Dependent Variable: Economic growth rate (GDP growth rate) – This variable represents the
overall rate of growth of the economy over a specific period.

Independent Variable: Unemployment rate – This variable reflects the proportion of the labor
force that is unemployed and actively seeking employment.

3.4 Model Specification

A simple linear regression model will be used to analyze the relationship between the
unemployment rate and economic growth. The regression model can be expressed as follows:

y=βₒ+ β ₁ x + ε

Where:

- y is the GDP growth rate in period.

- x is the unemployment rate in period.

- βₒis the intercept term.

- β₁ is the coefficient representing the impact of the unemployment rate on GDP growth.

- ε is the error term.

REFERENCES

 Attfield, Clifford, and Brian Silverstone. (1997). “Okun’s’ Coefficient: A Comment,”

Review of Economics and Statistics, vol. 79, no. 2, pp. 326—29.
 Cuaresma, Jesus Crespo. (2003). “Okun~c Law Revts’itea.” Oxford Bulletin of
Economics and Statistics, vol. 65, no. 4, pp. 439—51.
 Bhorat, H. and Oostuizen, M. (2006) “Employment Shifts and the Jobless Growth
Debate” Cape Town: HRSC Press.
 Bin-Obaid, A. H. (1997) “Classical, Keynesian and Monetarist Theories of
Unemployment: Are They Adequate to LCDs?” Journal of Economic and
Administrative Sciences Vol 4, No.13,151- 172.
 Kreishan. F. M. (2011) Economic Growth and Unemployment: An Empirical
Analysis. Journal of Social Sciences 7 (2): 228-231.
 Lee, J. (2000) “The Robustness of Okun’s law: Evidence from OECD countries”.
Journal of Macroeconomics.
 Njoku, A. and Ihugba, O A. (2011) Unemployment and Nigerian Economic Growth
(1985-2009). Proceedings of the 2011 Conference on Teaching, Learning, and
Change. Iternational Association of Teaching and Learning.
 Walterskirchen, E (1999) “The Relationship between Growth, Employment and
Unemployment in the EU. European Economist for an Alternative Economic Policy
Workshop.
 Yerdelen-Tatoglu, F. (2011) “The Long and Short Run Effects between
Unemployment and Economic Growth in Europe”, Dogus University Journal 12 (1):
99-113.
 Zamstats (2020) Labour Force Survey (LFS) annual results.
 PROGRAM OF THE RESEARCH

Activity Feb-March April - Jun-Jul Aug-Sep Oct- Nov Dec

2024 May 2024 2024 2024 2024
2024
Planning
Submission of
proposal
Literature
review
Data collection
Data analysis
Result
compilation
and report
writing
Submission of
research
Thesis defense
 PROPOSED BUDGET

COST AMOUNT

Transport cost K300

Talk time K500

Printing K350

Binding K250

Miscellaneous K500

Supervisory fee 1600

TOTAL COST 3500