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The Okun’s Law and the labor flexibility in Mexico: A cointegration analysis, 1997Q3-2014Q1

Author

Listed:
  • Eduardo Loría Díaz de Guzmán

    (Universidad Nacional Autónoma de México)

  • Emmanuel Alejandro Ramírez Guerra

    (Universidad Nacional Autónoma de México)

  • Emmanuel Salas

    (Universidad Nacional Autónoma de México)

Abstract

Because the labor flexibility has become an increasing condition in labor markets, we estimated the effect of labor flexibility on the unemployment rate in Mexico for 1997Q3-2014Q1. For this fact, we estimateda VECM (4) inspired on the Okun’s Law which includes a labor flexibility index, measured by the ratio of the temporary contracts to the total employees in the formal labor market. As expected by the Okun’sLaw (1962), we found a negative relationship between GDP and the unemployment rate. However, the most interesting result is that the labor flexibility index exhibits an increasing effect on the unemployment rate with an elasticity of 1.28.

Suggested Citation

  • Eduardo Loría Díaz de Guzmán & Emmanuel Alejandro Ramírez Guerra & Emmanuel Salas, 2015. "The Okun’s Law and the labor flexibility in Mexico: A cointegration analysis, 1997Q3-2014Q1," Contaduría y Administración, Accounting and Management, vol. 60(3), pages 631-650, julio-sep.
    • Handle: RePEc:nax:conyad:v:60:y:2015:i:3:p:631-650
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