Okun's Law: Fit at 50?

Author/Editor:

Laurence M. Ball ; Daniel Leigh ; Prakash Loungani

Publication Date:

January 14, 2013

Electronic Access:

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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

Summary:

This paper asks how well Okun’s Law fits short-run unemployment movements in the United States since 1948 and in twenty advanced economies since 1980. We find that Okun’s Law isa strong and stable relationship in most countries, one that did not change substantiallyduring the Great Recession. Accounts of breakdowns in the Law, such as the emergence of“jobless recoveries,” are flawed. We also find that the coefficient in the relationship—the effect of a one percent change in output on the unemployment rate—varies substantially across countries. This variation is partly explained by idiosyncratic features of national labormarkets, but it is not related to differences in employment protection legislation.

Series:

Working Paper No. 2013/010

Subject:

Employment Employment protection Labor Output gap Production Unemployment Unemployment rate

English

Publication Date:

January 14, 2013

ISBN/ISSN:

9781475574265/1018-5941

Stock No:

WPIEA2013010

Pages:

40

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