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Okun's Law: Fit at Fifty?

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  • 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 is a strong and stable relationship in most countries, one that did not change substantially during 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 labor markets, but it is not related to differences in employment protection legislation.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18668.

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Date of creation: Jan 2013
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Handle: RePEc:nbr:nberwo:18668

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Cited by:
  1. Menzie Chinn & Laurent Ferrara & Valérie Mignon, 2013. "Post-recession US employment through the lens of a non-linear Okun’s law," EconomiX Working Papers 2013-12, University of Paris West - Nanterre la Défense, EconomiX.

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