IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/18668.html
   My bibliography  Save this paper

Okun's Law: Fit at Fifty?

Author

Listed:
  • Laurence M. 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 twenty advanced economies since 1980. We find that Okun's Law is a strong and stable relationship in most countries, one that did not change substantially during the Great Recession. Accounts of breakdowns in the Law, such as the emergence of "jobless recoveries," are flawed. We also find that the coefficient in the relationship - the effect of a one percent 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 M. Ball & Daniel Leigh & Prakash Loungani, 2013. "Okun's Law: Fit at Fifty?," NBER Working Papers 18668, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:18668
    Note: EFG ME
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w18668.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Samuel Bentolila & Juan J. Dolado & Pierre Cahuc & Thomas Le Barbanchon, 2010. "Two-Tier Labor Markets in the Great Recession: France Vs. Spain," Working Papers wp2010_1009, CEMFI.
    2. Ono, Hiroshi, 2010. "Lifetime employment in Japan: Concepts and measurements," Journal of the Japanese and International Economies, Elsevier, vol. 24(1), pages 1-27, March.
    3. Donald W. K. Andrews, 2003. "Tests for Parameter Instability and Structural Change with Unknown Change Point: A Corrigendum," Econometrica, Econometric Society, vol. 71(1), pages 395-397, January.
    4. Michael W. L. Elsby & Bart Hobijn & Aysegul Sahin, 2010. "The Labor Market in the Great Recession," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 41(1 (Spring), pages 1-69.
    5. Robert J. Gordon, 2010. "Okun's Law and Productivity Innovations," American Economic Review, American Economic Association, vol. 100(2), pages 11-15, May.
    6. Michael T. Owyang & Tatevik Sekhposyan, 2012. "Okun’s law over the business cycle: was the great recession all that different?," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 399-418.
    7. Michael C. Burda & Jennifer Hunt, 2011. "What Explains the German Labor Market Miracle in the Great Recession," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 42(1 (Spring), pages 273-335.
    8. repec:fip:fedcec:y:2012:i:jun7:n:2012-8 is not listed on IDEAS
    9. Harding, Don & Pagan, Adrian, 2002. "Dissecting the cycle: a methodological investigation," Journal of Monetary Economics, Elsevier, vol. 49(2), pages 365-381, March.
    10. Cazes, Sandrine. & Verick, Sher. & Al Hussami, Fares., 2011. "Diverging trends in unemployment in the United States and Europe : evidence from Okun's law and the global financial crisis," ILO Working Papers 994676293402676, International Labour Organization.
    11. Walter Y. Oi, 1962. "Labor as a Quasi-Fixed Factor," Journal of Political Economy, University of Chicago Press, vol. 70, pages 538-538.
    12. Brent Meyer & Murat Tasci, 2012. "An unstable Okun’s Law, not the best rule of thumb," Economic Commentary, Federal Reserve Bank of Cleveland, issue June.
    13. Edward S. Knotek, 2007. "How useful is Okun's law?," Economic Review, Federal Reserve Bank of Kansas City, vol. 92(Q IV), pages 73-103.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. 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.
    2. Thomas Obst, 2022. "Dynamic version of Okun’s law in the EU15 countries—The role of delays in the unemployment‐output nexus," Scottish Journal of Political Economy, Scottish Economic Society, vol. 69(2), pages 225-241, May.
    3. Antal, Miklós, 2014. "Green goals and full employment: Are they compatible?," Ecological Economics, Elsevier, vol. 107(C), pages 276-286.
    4. Oberst, Christian & Oelgemöller, Jens, 2013. "Economic Growth and Regional Labor Market Development in German Regions: Okun’s Law in a Spatial Context," FCN Working Papers 5/2013, E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN).
    5. Donayre, Luiggi, 2022. "On the behavior of Okun's law across business cycles," Economic Modelling, Elsevier, vol. 112(C).
    6. Rui M. Pereira, 2013. "Okun's Law across the Business Cycle and during the Great Recession: A Markov Switching Analysis," Working Papers 139, Department of Economics, College of William and Mary.
    7. Elva Bova & Christina Kolerus & Sampawende Tapsoba, 2015. "A fiscal job? An analysis of fiscal policy and the labor market," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 4(1), pages 1-17, December.
    8. João Tovar Jalles, 2019. "On the Time‐Varying Relationship between Unemployment and Output: What shapes it?," Scottish Journal of Political Economy, Scottish Economic Society, vol. 66(5), pages 605-630, November.
    9. Eduardo Loría & Emmanuel Salas, 2014. "A Nonlinear Relationship: Unemployment and Economic Growth (Construction Sector) in Spain, 1995.1–2012.2," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 20(4), pages 439-453, November.
    10. Bellmann, Lutz & Hübler, Olaf, 2014. "Skill Shortages in German Establishments," IZA Discussion Papers 8290, Institute of Labor Economics (IZA).
    11. Ertürk, Korkut Alp & Mendieta-Muñoz, Ivan, 2018. "The changing dynamics of short-run output adjustment," MPRA Paper 87409, University Library of Munich, Germany.
    12. Woo, Jaejoon, 2023. "Revisiting Okun's law in South Korea: Asymmetries, crises, and structural changes," The Journal of Economic Asymmetries, Elsevier, vol. 27(C).
    13. Costas KARFAKIS & Constantinos KATRAKILIDIS & Eftychia TSANANA, 2014. "Does output predict unemployment? A look at Okun's law in Greece," International Labour Review, International Labour Organization, vol. 153(3), pages 421-433, September.
    14. Reamonn Lydon & Thomas Y. Mathä & Stephen Millard, 2019. "Short-time work in the Great Recession: firm-level evidence from 20 EU countries," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 8(1), pages 1-29, December.
    15. S. Haincourt. & M. Mogliani., 2012. "Has the 2008-2009 recession increased the structural share of unemployment in the euro area?," Quarterly selection of articles - Bulletin de la Banque de France, Banque de France, issue 25, pages 63-80, Spring.
    16. Maarten Dossche & Andrea Gavazzi & Vivien Lewis, 2023. "Labor Adjustment and Productivity in the OECD," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 47, pages 111-130, January.
    17. Menzie Chinn & Laurent Ferrara & Valérie Mignon, 2013. "Post-recession US employment through the lens of a non-linear Okun’s law," Working Papers hal-04141207, HAL.
    18. Ryan W Herzog, 2013. "An Analysis of Okun's Law, the Natural Rate, and Voting Preferences for the 50 States," Economics Bulletin, AccessEcon, vol. 33(4), pages 2504-2517.
    19. Andrey Launov, 2021. "Working Time Accounts and Turnover," Scandinavian Journal of Economics, Wiley Blackwell, vol. 123(3), pages 1025-1056, July.
    20. Celia Melguizo, 2017. "An analysis of Okun’s law for the Spanish provinces," Review of Regional Research: Jahrbuch für Regionalwissenschaft, Springer;Gesellschaft für Regionalforschung (GfR), vol. 37(1), pages 59-90, February.

    More about this item

    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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:18668. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.