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Okun's Law: Fit at Fifty?

Author Info

Listed author(s):
  • 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.

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File URL: http://www.nber.org/papers/w18668.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18668.

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Date of creation: Jan 2013
Handle: RePEc:nbr:nberwo:18668
Note: EFG ME
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Keywords:

Find related papers by 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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  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. 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.
  3. 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.
  4. 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.
  5. 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.
  6. Robert J. Gordon, 2010. "Okun's Law and Productivity Innovations," American Economic Review, American Economic Association, vol. 100(2), pages 11-15, May.
  7. Edward S. Knotek & II, 2007. "How useful is Okun's law?," Economic Review, Federal Reserve Bank of Kansas City, issue Q IV, pages 73-103.
  8. Owyang, Michael T. & Sekhposyan, Tatevik, 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.
  9. repec:fip:fedcec:y:2012:i:jun7:n:2012-8 is not listed on IDEAS
  10. Harding, Don & Pagan, Adrian, 2002. "Dissecting the cycle: a methodological investigation," Journal of Monetary Economics, Elsevier, vol. 49(2), pages 365-381, March.
  11. 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.
  12. Walter Y. Oi, 1962. "Labor as a Quasi-Fixed Factor," Journal of Political Economy, University of Chicago Press, vol. 70, pages 538-538.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Les prévisionnistes croient-ils en la loi d’Okun ?
    by ? in D'un champ l'autre on 2014-02-22 18:19:00
  2. Les marchés du travail lors de la Grande Récession
    by ? in D'un champ l'autre on 2014-05-17 19:55:00
  3. Comment expliquer le chômage des jeunes en Europe ?
    by ? in D'un champ l'autre on 2014-12-12 21:10:00
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