Macro Economics Analysis of Relationship between Unemployment and GDP Growth of Bhutan: Application of Okun’s Law

Abstract

This paper examines the relationship between unemployment and the GDP growth rate in Bhutan, focusing on the applicability of Okun's laws from 1991 to 2022. The findings reveal significant short-term and long-term impacts of unemployment on Bhutan's GDP. Both the short run and long run demonstrate the negative effects of unemployment on GDP in Bhutan. The results confirm the validity of Okun's law in the country, showing that a one-unit increase in unemployment leads to a decline of 2 percentage points in GDP. Consequently, this study emphasizes the need for appropriate measures and policies to address the unemployment problem in Bhutan. To tackle this issue, the implementation of hands-on training and workshops on job-related skills during undergraduate studies is recommended. By providing practical training early on, individuals will be better prepared for the job market, enhancing their employability and contributing to the economy more effectively. Furthermore, the government should allocate mandatory internships in various related fields. These internships will provide students with valuable practical experience, bridging the gap between theoretical knowledge and real-world application.