Determinants of Unemployment in Namibia

Abstract

This study investigates the causes of unemployment in Namibia for the period 1971 to 2007. The analysis iscarried out through an extensive review of the relevant literature, microeconomic and macroeconomic models ofunemployment. The unemployment model (with macroeconomic variables) is estimated using the Engle-Grangertwo-step econometric procedure. The results revealed that there is a negative relationship betweenunemployment and inflation in Namibia. Unemployment responds positively if actual output is below potentialoutput, and if wages increase. An increase in investment causes unemployment to decrease significantly. Theresults provide evidence that the Phillips curve holds for Namibia and unemployment can be reduced byincreasing aggregate demand. It is important to increase output up to the country’s potential, and there is a needfor wage flexibility (workers need to reduce their wage demands) in order to decrease unemployment in Namibia.Increasing investment will reduce unemployment significantly.