Okun's Law: Fit at 50?
January 14, 2013
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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.
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
Pages:
40
Volume:
2013
DOI:
Issue:
010
Series:
Working Paper No. 2013/010
Stock No:
WPIEA2013010
ISBN:
9781475574265
ISSN:
1018-5941
