Okun's Law: Fit at 50?

IMF Working Papers, January 14, 2013

Source details

Asks how well Okun’s Law fits short-run unemployment movements:
- In the United States since 1948.
- In twenty advanced economies since 1980.

Okun’s Law is a strong and stable relationship in most countries.
The relationship did not change substantially during the Great Recession.
Accounts of breakdowns in the Law, such as the emergence of “jobless recoveries,” are flawed.
The coefficient in the relationship—the effect of a one percent change in output on the unemployment rate—varies substantially across countries.
Variation in the coefficient is partly explained by idiosyncratic features of national labor markets.
The variation is not related to differences in employment protection legislation.

Subject: Employment, Employment protection, Labor, Output gap, Production, Unemployment, Unemployment rate
Keywords: absolute value, coefficient estimate, Economic fluctuations, Employment, Employment protection, estimates of Okun's Law, Law captures factor, Law coefficient, Okun’s law, Output gap, Unemployment, unemployment rate, Unemployment rate, unemployment-employment relation, unemployment-output relationship, Unemploymnent, WP

Format: IMF Working Papers
Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Source: IMF Working Paper "Okun's Law: Fit at 50?" (January 14, 2013), IMF Working Papers 2013/010, DOI: https://doi.org/10.5089/9781475574265.001