The problem of unemployment has been in focus of many researchers and a considerable work is done on this issue. Every researcher gave a different model including different variables in case of Pakistan without any consensus. This study analyzed the fundamental determinants of unemployment rate in Pakistan. In this study annual data is used from 1980 to 2015. To find out the fundamental determinants of unemployment rate in Pakistan, we use a mix of nested and non-nested hypothesis test as encompassing model selection strategy. Encompassing technique is the more preferable technique in searching the best model for any variable. Our final model shows that, Population growth rate and external debt have significant impact on unemployment rate while GDP growth rate, foreign direct investment and private investment are not the significant determinants of unemployment rate in Pakistan Supervisor:- Dr. Atiq-ur-Rehman