Short-run and long-run causality between labor supply and output growth : evidence from Malaysia

Abstract

Demand for quality labor force has been an important agenda in the Malaysia's labor market lately. In practice, the numbers of labor force in the primary, secondary and tertiary sectors has dramatically changed due the period of 1980-2000. Surprisingly, the output is still in the right track and sustainable growth rate although have faced several economics challenges and reformations. The main purpose of this study is to identify the causal relationship between the level labor supply an·d output growth in Malaysia's primary, secondary and tertiary sector respectively. This study used secondary data provided by the Malaysia's Economic Planning Unit, which covers from the year 1987 to 2008. An Engle-Granger 2-step approach has been used in this study to identify the long-run; and short causal relation between labor use and output growth in Malaysia. The findings of this study show clearly the causal relations between the sectors studied are not in the sustainable mode. Firstly, in the primary sector, the numbers of labor force are keeping on decreasing, but the outputs are dramatically increased for the entire period estimation of this study. Secondly, the labor force and output growths in the secondary and tertiary sectors are in the same line. These conclude the secondary and tertiary sectors are more sustainable rather than primary sector overtime. Throughout this study, useful policy implication can be introduced by the government to reach the sustainable economic growth in future.