The economics of unemployment in India: Okun's Law revisited

This study aims to predict the nature of the relationship between unemployment and gross domestic product in India in the light of Okun's law. Moreover, this thesis analyses and examines the impact of GDP on youth unemployment and checks the presence of jobless growth in India. Furthermore, to check if there exists a certain relationship between the dependent variable (youth unemployment rate) and independent variable (real GDP US$) in India, the Vector Error Correction model is adopted for the time series data of 1991-2019. Additionally, the ADF and Perron (1989) unit root test, lag selection, and cointegration tests of long run relationship between the youth unemployment rate and GDP are done before estimating the VEC model. The results show that the unemployment and GDP in India are positively related with Okun's coefficient  = 2.76 resulting in the conclusion of the presence of long run jobless growth in India. Also, the Wald Test confirms the presence of short run causality between the youth unemployment rate and GDP in India. Wherein, the causality is running from GDP to youth unemployment rate. Conclusively, this thesis negates the presence of Okun's law in India and instead confirms the presence of jobless growth in India post economic reforms of 1991.