Does COVID-19 affect GDP? A relationship between GDP and unemployment rate

Abstract

This study aims to examine the long-term relationship between the unemployment rate and the growth of domestic product (GDP) in Malaysia, thereby revealing unemployment's impact on GDP. In this COVID-19 pandemic situation, numerous people have lost their jobs. That indirectly increases the unemployment rate which later has a variety of negative consequences on the government, society, and individuals. The Malaysian government has taken a big step in announcing the Movement Control Order (MCO) to slow down the spread of infections. Such decisions have affected the unemployment rate, as some businesses have to reduce their employees and some high-risk companies temporarily closed to stop the spreading of COVID cases. The cointegration test is employed to identify the relationship between the unemployment rate and GDP and then validate it by analyzing the error. Quarterly unemployment rate and GDP data were obtained from the Department of Statistics Malaysia (DOSM) website from the first quarter of 2010 to the fourth quarter of 2020. The study found that the variables were stationary at first differencing and long-run relationships existed among them. According to the empirical findings in this study, long-run and short-run unemployment rates have a high influence on the GDP rate. However, the result contradicted one work in literature that claimed a negative association between GDP and unemployment for the past fifty years. This could have occurred as a result of the worldwide COVID-19 pandemic.