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Okun’s law and the unemployment surprise of 2009

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  • Mary C. Daly
  • Bart Hobijn

Abstract

In 2009, strong growth in productivity allowed firms to lay off large numbers of workers while holding output relatively steady. This behavior threw a wrench into the long-standing relationship between changes in GDP and changes in the unemployment rate, known as Okun’s law. If Okun’s law had held in 2009, the unemployment rate would have risen by about half as much as it did over the course of the year.

Suggested Citation

  • Mary C. Daly & Bart Hobijn, 2010. "Okun’s law and the unemployment surprise of 2009," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue mar8.
  • Handle: RePEc:fip:fedfel:y:2010:i:mar8:n:2010-07
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    References listed on IDEAS

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    Cited by:

    1. Florian Hoffmann & Thomas Lemieux, 2016. "Unemployment in the Great Recession: A Comparison of Germany, Canada, and the United States," Journal of Labor Economics, University of Chicago Press, vol. 34(S1), pages 95-139.
    2. Elva Bova & Christina Kolerus & Sampawende Tapsoba, 2015. "A fiscal job? An analysis of fiscal policy and the labor market," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 4(1), pages 1-17, December.
    3. Mary C. Daly & Bart Hobijn & Aysegül Sahin & Robert G. Valletta, 2012. "A Search and Matching Approach to Labor Markets: Did the Natural Rate of Unemployment Rise?," Journal of Economic Perspectives, American Economic Association, vol. 26(3), pages 3-26, Summer.
    4. Mary C. Daly & Bart Hobijn & Robert G. Valletta, 2011. "The recent evolution of the natural rate of unemployment," Working Paper Series 2011-05, Federal Reserve Bank of San Francisco.
    5. Murat Tasci, 2012. "The Ins and Outs of Unemployment in the Long Run: Unemployment Flows and the Natural Rate," Koç University-TUSIAD Economic Research Forum Working Papers 1233, Koc University-TUSIAD Economic Research Forum.
    6. Costas KARFAKIS & Constantinos KATRAKILIDIS & Eftychia TSANANA, 2014. "Does output predict unemployment? A look at Okun's law in Greece," International Labour Review, International Labour Organization, pages 421-433.
    7. 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.
    8. Berger, Tino & Everaert, Gerdie & Vierke, Hauke, 2016. "Testing for time variation in an unobserved components model for the U.S. economy," Journal of Economic Dynamics and Control, Elsevier, vol. 69(C), pages 179-208.
    9. Murat Tasci, 2010. "The ins and outs of unemployment in the long run: a new estimate for the natural rate?," Working Paper 1017, Federal Reserve Bank of Cleveland, revised 01 Sep 2011.
    10. Daniel L. Thornton, 2012. "The dual mandate: has the Fed changed its objective?," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 117-134.
    11. John G. Fernald, 2015. "Productivity and Potential Output before, during, and after the Great Recession," NBER Macroeconomics Annual, University of Chicago Press, vol. 29(1), pages 1-51.
    12. Aki Kangasharju & Christophe Tavera & Peter Nijkamp, 2012. "Regional Growth and Unemployment: The Validity of Okun's Law for the Finnish Regions," Spatial Economic Analysis, Taylor & Francis Journals, vol. 7(3), pages 381-395, September.
    13. 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;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 2(1), pages 1-18, December.
    14. 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.
    15. Owyang, Michael T. & Sekhposyan, Tatevik, 2012. "Okun’s law over the business cycle: was the great recession all that different?," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 399-418.
    16. David Lang & Kevin J. Lansing, 2010. "Forecasting growth over the next year with a business cycle index," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue sep27.
    17. Deepankar Basu & Duncan K. Foley, 2013. "Dynamics of output and employment in the US economy," Cambridge Journal of Economics, Oxford University Press, vol. 37(5), pages 1077-1106.
    18. Emre Aksoy, 2013. "Relationships between Employment and Growth from Industrial Perspective by Considering Employment Incentives: The Case of Turkey," International Journal of Economics and Financial Issues, Econjournals, vol. 3(1), pages 74-86.
    19. repec:ilo:ilowps:467629 is not listed on IDEAS
    20. Oscar Jorda & John Fernald & Fernanda Nechio & Mary Daly, 2013. "Okun’s Macroscope: Changes in the Cyclical Behavior of Productivity and the Comovement between Output and Unemployment," 2013 Meeting Papers 1155, Society for Economic Dynamics.
    21. Pesliakaite, Jurgita, 2015. "The Impact of GDP Structure on the Stability of Okun's Law in Lithuania," MPRA Paper 69190, University Library of Munich, Germany.
    22. Bande, Roberto & Martín-Román, Ángel L., 2017. "Regional differences in the Okun’s Relationship: New Evidence for Spain (1980-2015)," MPRA Paper 79833, University Library of Munich, Germany.
    23. Mary Daly & Bart Hobijn & Aysegul Sahin & Robert Valletta, 2011. "A Rising Natural Rate of Unemployment: Transitory or Permanent?," Tinbergen Institute Discussion Papers 11-160/3, Tinbergen Institute.
    24. Lucchetta, Marcella & Paradiso, Antonio, 2014. "Sluggish US employment recovery after the Great Recession: Cyclical or structural factors?," Economics Letters, Elsevier, vol. 123(2), pages 109-112.
    25. Oberst, Christian & Oelgemöller, Jens, 2013. "Economic Growth and Regional Labor Market Development in German Regions: Okun’s Law in a Spatial Context," FCN Working Papers 5/2013, E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN).

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    Keywords

    Unemployment ; Productivity;

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