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Beyond Okun's Law: Output Growth and Labor Market Flows

Author

Listed:
  • Guay C. Lim

    () (Melbourne Institute: Applied Economic & Social Research, The University of Melbourne)

  • Robert Dixon

    (University of Melbourne)

  • Jan C. van Ours

    (Erasmus University Rotterdam, Tinbergen Institute, University of Melbourne)

Abstract

This paper studies the relationship between the change in the unemployment rate and output growth using an approach based on labour market flows. The framework shows why the Okun coefficient may be constant/time-varying and/or symmetric/asymmetric and that the outcome lies with the behaviour of the labour flows in response to growth. The encompassing framework nests the conditions to determine the properties of the Okun coefficient without the need to rely on retrospective arbitrary dating of recessions. The framework also highlights the potential mispecification in conventional models of Okun's Law unless stringent conditions are assumed about the behavior of labour flows. The empirical analysis is based on the stock-consistent labour market flows data developed by the BLS for the period 1990:2-2017:3.

Suggested Citation

  • Guay C. Lim & Robert Dixon & Jan C. van Ours, 2019. "Beyond Okun's Law: Output Growth and Labor Market Flows," Melbourne Institute Working Paper Series wp2019nxx, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  • Handle: RePEc:iae:iaewps:wp2019nxx
    as

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    File URL: https://melbourneinstitute.unimelb.edu.au/__data/assets/pdf_file/0003/2971461/wp2019n01.pdf
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    References listed on IDEAS

    as
    1. Elsby, Michael W.L. & Hobijn, Bart & Şahin, Ayşegül, 2015. "On the importance of the participation margin for labor market fluctuations," Journal of Monetary Economics, Elsevier, vol. 72(C), pages 64-82.
    2. Jorge Belaire-Franch & Amado Peiró, 2015. "Asymmetry in the relationship between unemployment and the business cycle," Empirical Economics, Springer, vol. 48(2), pages 683-697, March.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Labour flows; time-varying Okun; asymmetry;

    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
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure

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