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Post-recession US employment through the lens of a non-linear Okun’s law

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  • Menzie Chinn
  • Laurent Ferrara
  • Valérie Mignon

Abstract

This paper aims at investigating the relationship between employment and GDP in the United States. We disentangle trend and cyclical employment components by estimating a non-linear Okun’s law based on a smooth transition error-correction model that simultaneously accounts for long-term relationships between growth and employment and short-run instability over the business cycle. Our findings based on out-of-sample conditional forecasts show that, since the exit of the 2008-09 recession, US employment is on average around 1% below the level implied by the long run output-employment relationship, meaning that about 1.2 million of the trend employment loss cannot be attributed to the identified cyclical factors.

Suggested Citation

  • 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 Nanterre, EconomiX.
  • Handle: RePEc:drm:wpaper:2013-12
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    References listed on IDEAS

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    Cited by:

    1. Benos, Nikos & Stavrakoudis, Athanassios, 2022. "Okun's law: Copula-based evidence from G7 countries," The Quarterly Review of Economics and Finance, Elsevier, vol. 84(C), pages 478-491.
    2. Jon D. Wisman & Aaron Pacitti, 2013. "Ending the Crisis With Guaranteed Employment and Retraining," Working Papers 2013-12, American University, Department of Economics.
    3. Miquel Clar-Lopez & Jordi López-Tamayo & Raúl Ramos, 2014. "Unemployment forecasts, time varying coefficient models and the Okun’s law in Spanish regions," Economics and Business Letters, Oviedo University Press, vol. 3(4), pages 247-262.
    4. Luz A. Flórez & Karen L. Pulido-Mahecha & Mario A. Ramos-Veloza, 2018. "Okun´s law in Colombia: a non-linear cointegration," Borradores de Economia 1039, Banco de la Republica de Colombia.
    5. Ryan Herzog, 2013. "Using state level employment thresholds to explain Okun’s Law," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 2(1), pages 1-26, December.
    6. Jan Bruha & Jiri Polansky, 2015. "Empirical Analysis of Labor Markets over Business Cycles: An International Comparison," Working Papers 2015/15, Czech National Bank.
    7. Hogrefe, Jan & Sachs, Andreas, 2014. "Unemployment and labor reallocation in Europe," ZEW Discussion Papers 14-083, ZEW - Leibniz Centre for European Economic Research.

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    More about this item

    Keywords

    Okun’s law; trend employment; non-linear modeling;
    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
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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