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Okun´s Law over the Business Cycle: Does it Change in the EU Countries after the Financial Crisis?

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  • Marcel Novák
  • Ľubomír Darmo

Abstract

The relationship between economic growth and unemployment is well known. The growth of gross domestic product leads to a fall in unemployment and, reversely, its fall is associated with a rise in unemployment. The paper deals with the estimation of Okun's coefficient for EU28 countries between years 2001 and 2014. Additionally, two sub-periods are also analysed. These represent the pre-crisis period 2001-2007 and the post-crisis period 2008-2014. The result shows higher Okun's coefficient in the post-crisis period. Unemployment in that period responded to changes in gross domestic product more sensitively than in the pre-crisis period. As a result, in order to decrease unemployment, lower economic growth was necessary in the post-crisis period compared to the pre-crisis one.

Suggested Citation

  • Marcel Novák & Ľubomír Darmo, 2019. "Okun´s Law over the Business Cycle: Does it Change in the EU Countries after the Financial Crisis?," Prague Economic Papers, Prague University of Economics and Business, vol. 2019(2), pages 235-254.
    • Handle: RePEc:prg:jnlpep:v:2019:y:2019:i:2:id:694:p:235-254
    DOI: 10.18267/j.pep.694
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    References listed on IDEAS

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    1. Martin Boďa & Petra Medveďová & Mariana Považanová, 2015. "(A)symetria v Okunovom zákone v štátoch Vyšehradskej skupiny [(A)symmetry in Okun's Law in the Visegrad Group Countries]," Politická ekonomie, Prague University of Economics and Business, vol. 2015(6), pages 741-758.
    2. Durech, Richard & Minea, Alexandru & Mustea, Lavinia & Slusna, Lubica, 2014. "Regional evidence on Okun's Law in Czech Republic and Slovakia," Economic Modelling, Elsevier, vol. 42(C), pages 57-65.
    3. Edward S. Knotek, 2007. "How useful is Okun's law?," Economic Review, Federal Reserve Bank of Kansas City, vol. 92(Q IV), pages 73-103.
    4. Gabrisch, Hubert & Buscher, Herbert S., 2005. "The unemployment-growth relationship in transition countries," IWH Discussion Papers 5/2005, Halle Institute for Economic Research (IWH).
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    Citations

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    Cited by:

    1. Porras-Arena, M. Sylvina & Martín-Román, Ángel L., 2023. "The heterogeneity of Okun's law: A metaregression analysis," Economic Modelling, Elsevier, vol. 128(C).
    2. Mindaugas Butkus & Laura Dargenyte-Kacilevièiene & Kristina Matuzevièiute & Janina Šeputiene & Dovile Rupliene, 2023. "Age- and Gender-specific Output-employment Relationship across Economic Sectors," Journal of Economics / Ekonomicky casopis, Institute of Economic Research, Slovak Academy of Sciences, vol. 71(1), pages 3-22, January.
    3. Mindaugas Butkus & Kristina Matuzeviciute & Dovile Rupliene & Janina Seputiene, 2020. "Does Unemployment Responsiveness to Output Change Depend on Age, Gender, Education, and the Phase of the Business Cycle?," Economies, MDPI, vol. 8(4), pages 1-29, November.
    4. Mihajlović Vladimir & Marjanović Gordana, 2021. "Challenges of the Output-Employment Growth Imbalance in Transition Economies," Naše gospodarstvo/Our economy, Sciendo, vol. 67(2), pages 1-9, June.
    5. Mindaugas Butkus & Janina Seputiene, 2019. "The Output Gap and Youth Unemployment: An Analysis Based on Okun’s Law," Economies, MDPI, vol. 7(4), pages 1-17, November.

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    More about this item

    Keywords

    business cycle; unemployment; Okun's law;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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