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Okun's Law

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Author Info

  • Laurence M. Ball
  • Daniel Leigh
  • Prakash Loungani

Abstract

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.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 13/10.

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Length: 40
Date of creation: 14 Jan 2013
Date of revision:
Handle: RePEc:imf:imfwpa:13/10

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Related research

Keywords: Unemployment; United States; Developed countries; Labor markets; Cross country analysis; Economic models; Unemploymnent; Okun’; s law; Economic fluctuations.; recession; unemployment rate; jobless; labor force; employment protection; lifetime employment; employment relation; temporary employment; average unemployment; employment protection legislation; employment contracts; high unemployment; labor force participation; unemployment rates; unemployment benefits; long-run employment; employment raises; average unemployment rate; employment relationship; legal employment; employment growth; natural rate of unemployment; job creation; employment equation; job search; low unemployment; overall employment;

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Citations

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Cited by:
  1. Ryan W Herzog, 2013. "An Analysis of Okun's Law, the Natural Rate, and Voting Preferences for the 50 States," Economics Bulletin, AccessEcon, vol. 33(4), pages 2504-2517.
  2. Richter, Kaspar & Witkowski, Bartosz, 2014. "Does growth generate jobs in Eastern Europe and Central Asia ?," Policy Research Working Paper Series 6759, The World Bank.
  3. KARGI, Bilal, 2013. "Okun’s Law and Long Term Co-Integration Analysis for OECD Countries (1987-2012)," MPRA Paper 55700, University Library of Munich, Germany.
  4. Sandrine Cazes & Sher Verick & Fares Al Hussami, 2013. "Why did unemployment respond so differently to the global financial crisis across countries? Insights from Okun’s Law," IZA Journal of Labor Policy, Springer, vol. 2(1), pages 1-18, December.

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