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Sectoral Okun's Law and Cross-Country Cyclical Differences

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  • Eiji Goto
  • Constantin Bürgi

Abstract

We estimate Okun’s law, the negative relationship between output and the unemployment rate, at the sector level for the US, the UK, Japan, and Switzerland to test several hypotheses that may explain why the aggregate Okun’s coeffcients are different across countries. Specifically, we show that the sectoral composition is not a driver and find that the sectoral coefficients are proportional to the aggregate in all four countries. We also show that the standard deviation of unemployment is the main driver of the cross-country differences. This is consistent with labor market policies being crucial to explain the cross-country cyclical differences in the aggregate Okun’s coefficient.

Suggested Citation

  • Eiji Goto & Constantin Bürgi, 2020. "Sectoral Okun's Law and Cross-Country Cyclical Differences," CESifo Working Paper Series 8101, CESifo.
    • Handle: RePEc:ces:ceswps:_8101
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    2. Fukao, Kyoji & Perugini, Cristiano & Pompei, Fabrizio, 2022. "Labour market regimes, technology and rent-sharing in Japan," Economic Modelling, Elsevier, vol. 112(C).
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    4. Constantin Bürgi & Nisan Gorgulu, 2020. "Social Distancing and the Economic Impact of Covid-19 in the United States," CESifo Working Paper Series 8577, CESifo.

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    More about this item

    Keywords

    Okun’s law; cross-country differences; sectors;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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