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Relationship Between Economic Growth Rate And Unemployment – U.K. Economy

Introduction (Background)

Economic growth and unemployment are the two major variables of microeconomics. These two variables go hand in hand. If the economic growth is declined, unemployment also increases, i.e. people get least opportunities for pursuing jobs and earning livelihood for themselves. These two are the noteworthyfactors of economics field. Many economists have put forth different theories and laws regarding this relationship been economic growth and unemployment. For example, Okun’s Lawanalyze the connection between growth and unemployment and their statistical relationship. In the current research work, there will be a discussion about relationship between unemployment and economic growth of any nation and how such factors modify each other will be explained.

Aims and Objectives:


Objectives of the research work follow as:

  • To gather information regarding rate of unemployment and economic growth in UK.
  • To understand relationship between unemployment and economic growth by analyzing their dependency on each other.

Aim: Aim helps to reach towards a meaningful conclusion while maintaining connection between theories and models. Aim of this study is to scrutinize relationship between economic growth and rate of unemployment while using the case study of UK.

Research Questions

Research questions helps to give a direction to the research work. It clears all doubts related to the topic by providing meaningful questions for which answers need to seek at every step of research while moving towards conclusion. Following is the research question related to the matter of subject:

  • How rate of unemployment and economic growth are connected to each other?


  1. There is a negative relationship between economic growth and unemployment of UK.
  2. There is no negative relationship between economic growth and unemployment of UK.

The first and the second hypothesis both are alternative to each other so as to create judgement on both the statements.

Literature Review

Unemployment refers to lack of available opportunities which hinders skilled and appropriate persons to get job. It is a situation where a person possesses all the skill and training that are needed to attain a job opportunity but due to lack of or non-availability of least opportunities, the success factor lack behind. Statistically, rate of unemployment can be calculated by dividing number of unemployed person in a region or a country by total work force of that region or country. In this, total workforce refers to the people who are willing to work. One of the famous laws to describe relationship between unemployment and economic growth is Okun’s law. According to this law, there exists negative relationship between economic growth and unemployment factor of a country. There exists number of effect of unemployment on economy of a country such as:

  • Increase in the financial cost of the economy: unemployment affects productivity of a nation due to which government has to suffer a lot. The government of developed countries like UK provides advantage of unemployment to unemployed persons. Though this decreases the earnings of government due to less productivity within the nation, benefits are provided to unemployed people during high unemployment rate.
  • Minimizing the spending power of unemployed: Because of unemployment and need of money in hand, unemployed people suffer a lot due to their low purchasing power which greatly affects the economy.
  • Reduction in the spending power of employed people: Employed people also suffer due to low spending power because deduction of high rate of taxes and insecurity of their own jobs.
  • Recession: Increase in rate of unemployment affects many factors of economy such as increase in health costs, increase in health care facilities, decrease in per capita income of nation, poor quality of lifestyle, etc. In the period from 2002 to 2012, decrease in economic growth of UK, there was increase in the rate of unemployment. But over the period of 2013 to 2015, the relation just became opposite. The economy of UK increase with the increase in employment rates.(com, 2015). Hence, it can be said that Okun’s law fists exactly into the changing situations of employment conditions in UK. And as per Okun’s law, there exists negative relationship between economic growth and unemployment in UK.

Research Methodology

In the current research, deductive method has been applied to judge or analyze the statements of hypothesis. Data for comparison of employment between the different time periods have been arranged with the help of secondary data collection method. The data has been collected from GDP growth rate, consumers’ spending and real interest rate of U.K and other official online or offline sites of UK.


Boyes, W. (2015). Macroeconomics. [Place of publication not identified]: Cengage Learning., (2015). Unemployment, total (% of total labor force) (modeled ILO estimate) | Data | Table. [online] Available at: [Accessed 15 Jul. 2015]., (2015). Unemployment, total (% of total labor force) (modeled ILO estimate) | Data | Table. [online] Available at: [Accessed 15 Jul. 2015].

Journal of Political Economy.(2015). Journal of Political Economy, 123(1), p.Inside Back Cov-Inside Back Cov.

King, J. (2014). The Handbook of the Political Economy of Financial Crises. Review of Political Economy, 27(1), pp.97-102.

Krugman, P. (2015). Macroeconomics. [Place of publication not identified]: Worth Pub., (2015). United Kingdom GDP Annual Growth Rate | 1956-2015 | Data | Chart | Calendar. [online] Available at: [Accessed 15 Jul. 2015].


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