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Okun's Law: Fit at 50?

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  • LAURENCE 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 20 advanced economies since 1980. We find that Okun's Law is a strong relationship in most countries, and one that is fairly stable over time. Accounts of breakdowns in the Law, such as the emergence of “jobless recoveries,” are flawed or exaggerated. We also find that the coefficient in the relationship—the effect of a 1% 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.

Suggested Citation

  • Laurence Ball & Daniel Leigh & Prakash Loungani, 2017. "Okun's Law: Fit at 50?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 49(7), pages 1413-1441, October.
    • Handle: RePEc:wly:jmoncb:v:49:y:2017:i:7:p:1413-1441
    DOI: 10.1111/jmcb.12420
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