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A State-Level Analysis of Okun's Law

Listed author(s):
  • Amy Guisinger

    (George Washington University)

  • Ruben Hernandez-Murillo
  • Michael Owyang
  • Tara Sinclair

    ()

    (Institute for International Economic Policy, George Washington University)

Okun’s law is an empirical relationship that measures the correlation between the deviation of the unemployment rate from its natural rate and the deviation of output growth from its potential. In this paper, we estimate Okun’s coefficients for each U.S. state and examine the potential factors that explain the heterogeneity of the estimated Okun relationships. We find that indicators of more flexible labor markets (higher levels of education achievement in the population, lower rate of unionization, and a higher share of non-manufacturing employment) are important determinants of the differences in Okun’s coefficient across states. Finally, we show that Okun’s relationship is not stable across specifications, which can lead to inaccurate estimates of the potential determinants of Okun’s coefficient.

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File URL: http://www.gwu.edu/~iiep/assets/docs/papers/2015WP/GuisingerSinclairIIEPWP201517.pdf
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Paper provided by The George Washington University, Institute for International Economic Policy in its series Working Papers with number 2015-17.

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Length: 40 pages
Date of creation: Sep 2015
Handle: RePEc:gwi:wpaper:2015-17
Contact details of provider: Web page: http://www.gwu.edu/~iiep/
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