The economic variable that is chosen for analysis is the unemployment rate and the country under study is Israel. The data on the unemployment rate has been collected from the United Nations statistics website (UNStats, 2009) and IMF database (IMF, 2009). The data o unemployment has been gathered from 1985 until 2008.
The unemployment rate in Israel is presented in the figure below. Israel’s unemployment rate increased initially but it started to decline in 2004. The rate was highest in 2003 at 10.7 percent. There have been continuous ups and down in the unemployment rate in the country. The first massive rise in the unemployment rate was during 1988 to 1992 when there was the incidence of the Gulf War (1990-92). Another rise in unemployment arose from 1998 through 2003. During this period (1998-2003), the economy had faced volatile industrial production (IMF, 2009). Presently the global unemployment rate is at 7.1 percent (ILO, 2009), which is higher than the Israeli unemployment rate which is at 6 percent.
The population of the country has been increasing constantly (IMF, 2009). With an increase in population, the unemployment rate has a negative relation, indicating, as there are population increases, the unemployment rate declined. This is indicative of an increasing number of people being employed and joining the workforce.
The improvement in the unemployment situation is attributable to various reasons. One such reason is the growing GDP per capita income of the country. The country’s per capita income is negatively correlated with the unemployment rate indicating an increased per capita income, which implies more income to the citizens of the country indicating there is a lower rate of unemployment. Intuitively, it can be said that with lower unemployment, the employability in the labor force increases which automatically contributes to higher production in the country, increasing GDP. With a population growth rate ranging from 1.7 to 2.2 percent in 2000-08, the per capita income of the country increased.
Further, with an increasing nominal GDP growth rate, which is increasing at 22 percent in 2008, the economy is bound to produce more employment, thus driving down the unemployment rate. Over the years, the nominal GDP growth rate has been positive and increasing since 2003. The growth rate was negative and fell drastically during 2001-02. Evidently, during this period the unemployment rate increased too. This was due to the weakening of the fundamentals of the economy. A fall in the growth rate indicates that the economy did not perform so well, which drove down the growth rate of GDP, consequently increasing the unemployment rate.
When the unemployment rate is correlated with the industrial production rate, it showed a very weak negative relation. In a way, the unemployment rate does not hold any significant relation with industrial production in the country as there has been a decline in the unemployment rate when the growth of industrial production was negative in 1988 and 1989 (IMF, 2009).
A linear forecast trend line is drawn (see figure 1) for the unemployment rate, which shows that Israel is expected to experience an increasing, trend in the unemployment rate. This shows that the country will experience an increase in the unemployment rate, which may be attributable to the continuing political problems in the region as well as the global economic recession. Further, the oil prices have declined which must have taken a toll on the economy.
References
- ILO. (2009). Global Employment Trends. Geneva: International Labour Organization.
- IMF. (2009). IMF Data Mapper.
- UNStats. (2009). UNStats. Web.