The Role of Financial Inclusion in Shaping Labor Market Outcomes in Emerging Economies

Abstract

Financial inclusion has emerged as a central focus of economic policymaking globally, with governments recognizing its potential to drive inclusive economic growth. By improving access to formal financial services for marginalized and economically weaker segments of society, financial inclusion can foster greater economic opportunities at both the individual and national levels. This study seeks to empirically examine the relationship between financial inclusion and unemployment rates in developing countries over the period from 2009 to 2023. The results of this study indicate that financial inclusion plays a significant role in reducing unemployment rates in developing countries. The findings suggest that as the level of financial inclusion increases through greater access to banking services, credit, insurance, and other financial products—individuals are better able to engage in economic activities, start businesses, and invest in skills and education, leading to a reduction in unemployment. In this context, financial inclusion is seen as a key enabler of economic mobility, especially for low-income households and those in rural or underserved areas. In addition to the positive effects of financial inclusion, the study identifies several other factors that influence unemployment rates in developing economies. The level of education emerges as a significant factor, with higher education levels correlating with lower unemployment. This suggests that improving access to quality education and training can enhance employability and reduce joblessness. Furthermore, inflation is found to have a negative impact on unemployment, as higher inflation often leads to economic instability, which can reduce job creation and increase the cost of living, making it harder for businesses to hire workers. Economic growth also plays a crucial role in reducing unemployment. The study suggests that as countries experience higher economic growth, businesses are more likely to expand, leading to an increase in job opportunities. Thus, promoting both financial inclusion and broader economic growth policies can create a more favorable environment for job creation. The empirical findings underscore the importance of financial inclusion as a tool for reducing unemployment in developing countries. By ensuring that more people have access to formal financial services, countries can foster entrepreneurial activity, improve financial resilience, and enhance the overall labor market outcomes. These results suggest that policymakers in developing nations should prioritize initiatives that increase financial inclusion, alongside policies that improve education and promote economic stability, to reduce unemployment and promote inclusive economic growth.