Nowadays, some of the macroeconomics and policy makers assume that unemployment and inflation are too bad, because both of this factor able to reduce social welfare (Ruprah & Luengas, 2011). The growth and shocks in unemployment may be able to reduce of this deregulation of monetary policy that has been followed with high volume of growth (Eatwell, 2000). Among industrial and developed countries, long-term trends in unemployment since the world war show a distinct break in 1970s and up to that time unemployment rates were at historically low level. According to Marglin and Schor (1990), the low rate of unemployment is not reasonable to discuss about the full employment or ‘golden age’ because the capitalist economic system has grew even faster than expected in the early stage. The most attracting development issue in developing country in the recent modern economic is the lasting unemployment rate.
The unemployment rate can be defined as the number of people actively looking for a job divided by the labour force. Changes in unemployment depend mostly on inflows made up of non-employed people starting to look for jobs, of employed people who lose their jobs and look for new ones and of people who stop looking for employment. In almost any economy at almost any time, many individuals appear to be unemployed. That is, there are many people who are not working but who say they want to work in jobs like those held by individuals similar to them, at the wages those individuals are earning. Unemployment occurs when a person is available to work and seeking work but currently without work Graduates are unable to secure job after graduating from respective universities and college universities. Graduate unemployment is unemployment among people with an academic degree.
Unemployment rate is the proportion of unemployed population to the total population in labour force. This rate measures the percentage of unemployed population in the labour force. According to producer of national statistics, the labour market in Malaysia in October 2012was stated that the unemployment is 12,473.9. The unemployment rate remained at 3.2%. The unemployment rate in October 2012 remains unchanged at 3.2 per cent from the previous month. However, a slight increase of 3,200 persons was recorded by the unemployment, bringing to a total of 417,100 persons, while the number of employed persons declined by 79,300 to 12.47 million persons. Meanwhile, the seasonally adjusted unemployment rate stood at 3.5 per cent in October 2012. A comparison with the same month of the previous year showed that the unemployment rate was higher by 0.2 percentage point from 3.0 per cent in October 2011. The unemployment is classified into two that is the actively unemployment and inactively unemployment. The actively unemployment include all persons who did not work during the reference week but were available for work and actively looking for work during the reference week. The inactively unemployment persons include the following categories: a. Persons who did not look for work because they believed no work was available or that they were not qualified. b. Persons who would have looked for work if they had not been temporarily ill or had it not been for bad weather c. Persons who were waiting for result of job applications d. Persons who had looked for work prior to the reference week.
There is a large amount of economic literature investigating unemployment cause negative impacts of economic growth and productivity (King & Welling, 1995; Berument et al.,2006; Moreno-Gablis 2006; Tsaliki, 2007; Schubert, 2011). However, studies concentrating on the relationship between unemployment and monetary policy have not been studied deeply by most researchers. Even the unemployment rate and economic growth as well as the productivity problem often arise together, but most of literature has traditionally...