Okun's Law: Fit at 50?
41 Pages Posted: 28 Feb 2013
Date Written: January 2013
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 is a 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.
Keywords: Cross country analysis, Developed countries, Economic fluctuations., Economic models, Labor markets, Okun's law, Unemployment, Unemploymnent, United States
JEL Classification: E24, E32
Suggested Citation: Suggested Citation