Economic Growth and Regional Labor Market Development in German Regions: Okun’s Law in a Spatial Context
The inverse relationship between economic growth and labor market developments in the form of changes in the unemployment rate is known in economic literature as Okun’s law. The objectives of this paper are to estimate a regionalized Okun coefficient and its associated (regional) unemployment thresholds. The suitability and limitations of Okun’s law as a rule of thumb for regional economic growth and labor market policy are also discussed. Motivated by “Germany’s Jobs Miracle” in face of the economic crisis of 2008 and 2009, the existence of an uncoupling effect between economic and unemployment growth is questioned and whether regional economic growth is a driving force for regional labor market development. A regional dataset for the years 2002 to 2009 is employed for this study. The spatial dimension is pursued in two ways: a non-parametric approach using functionally defined labor markets as study areas and the application of spatial econometric panel data models, in particular the Spatial Durbin Error Model. The rationale is that functionally defined regional study areas are the appropriate spatial reference level for the analysis. It is found that, without accounting for spatial dependence, regionalized Okun coefficients are likely to be overestimated. The empirical results confirm a positive impact of economic growth on labor market performance; however, the estimated effect of regional economic growth is far lower than would have been expected. The paper illustrates the limited transferability of Okun’s law as a rule of thumb for growth dynamics on a regional level as well as limitations of regional growth dynamics for regional labor market development.
|Date of creation:||Mar 2013|
|Contact details of provider:|| Web page: http://www.eonerc.rwth-aachen.de/fcn|
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Kwami Adanu, 2005. "A cross-province comparison of Okun's coefficient for Canada," Applied Economics, Taylor & Francis Journals, vol. 37(5), pages 561-570.
- repec:ilo:ilowps:467629 is not listed on IDEAS
- Ulrich Zierahn, 2012.
"The importance of spatial autocorrelation for regional employment growth in Germany,"
Review of Regional Research: Jahrbuch für Regionalwissenschaft,
Springer;Gesellschaft für Regionalforschung (GfR), vol. 32(1), pages 19-43, March.
- Ulrich Zierahn, 2011. "The importance of spatial autocorrelation for regional employment growth in Germany," ERSA conference papers ersa10p205, European Regional Science Association.
- Ulrich Zierahn, 2010. "The Importance of Spatial Autocorrelation for Regional Employment Growth in Germany," MAGKS Papers on Economics 201031, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
- James LeSage & R. Kelley Pace, 2010. "Spatial Econometrics," Book Chapters, in: Web Book of Regional Science Regional Research Institute, West Virginia University.
- Michael C. Burda & Jennifer Hunt, 2011.
"What Explains the German Labor Market Miracle in the Great Recession?,"
NBER Working Papers
17187, National Bureau of Economic Research, Inc.
- 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.
- Burda, Michael C. & Hunt, Jennifer, 2011. "What Explains the German Labor Market Miracle in the Great Recession?," IZA Discussion Papers 5800, Institute for the Study of Labor (IZA).
- Michael C. Burda & Jennifer Hunt, 2011. "What Explains the German Labor Market Miracle in the Great Recession?," SFB 649 Discussion Papers SFB649DP2011-031, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
- Burda, Michael C & Hunt, Jennifer, 2011. "What Explains the German Labor Market Miracle in the Great Recession?," CEPR Discussion Papers 8520, C.E.P.R. Discussion Papers.
- M. Yazgan & Hakan Yilmazkuday, 2009. "Okun’s convergence within the US," Letters in Spatial and Resource Sciences, Springer, vol. 2(2), pages 109-122, October.
- Moosa, Imad A., 1997. "A Cross-Country Comparison of Okun's Coefficient," Journal of Comparative Economics, Elsevier, vol. 24(3), pages 335-356, June.
- J. Barkley Rosser, 2009. "Introduction," Chapters, in: Handbook of Research on Complexity, chapter 1 Edward Elgar Publishing.
- Nicholas Apergis & Anthony Rezitis, 2003. "An examination of Okun's law: evidence from regional areas in Greece," Applied Economics, Taylor & Francis Journals, vol. 35(10), pages 1147-1151.
- Göran Therborn & K.C. Ho, 2009. "Introduction," City, Taylor & Francis Journals, vol. 13(1), pages 53-62, March.
- Eckey, Hans-Friedrich & Kosfeld, Reinhold & Türck, Matthias, 2006. "Abgrenzung deutscher Arbeitsmarktregionen," Volkswirtschaftliche Diskussionsbeiträge 81, Faculty of Economics and Management, University of Kassel.
- Christian Pierdzioch & Jan‐Christoph Rülke & Georg Stadtmann, 2012. "Is there a Core of Macroeconomics that Euro Area Forecasters Believe In?," German Economic Review, Verein für Socialpolitik, vol. 13(1), pages 103-115, 02.
- Oliver W. Lerbs & Christian A. Oberst, 2014.
"Explaining the Spatial Variation in Homeownership Rates: Results for German Regions,"
Taylor & Francis Journals, vol. 48(5), pages 844-865, May.
- Oliver Lerbs & Christian Oberst, 2011. "Explaining the Spatial Variation in Homeownership Rates: Results for German Regions," CESifo Working Paper Series 3377, CESifo Group Munich.
- 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.
- Brian Silverstone & Richard Harris, 2001. "Testing for asymmetry in Okun's law: A cross-country comparison," Economics Bulletin, AccessEcon, vol. 5(2), pages 1-13.
- Vicente Royuela & Miguel Vargas, 2007. "Defining housing market areas using commuting and migration algorithms.Catalonia (Spain) as an applied case study," IREA Working Papers 200707, University of Barcelona, Research Institute of Applied Economics, revised Apr 2007.
- Dimitris Christopoulos, 2004.
"The relationship between output and unemployment: Evidence from Greek regions,"
Economics of Governance,
Springer, vol. 83(3), pages 611-620, 07.
- Dimitris Christopoulos, 2004. "The relationship between output and unemployment: Evidence from Greek regions," Papers in Regional Science, Springer;Regional Science Association International, vol. 83(3), pages 611-620, 07.
- J. Paul Elhorst, 2003. "The Mystery of Regional Unemployment Differentials: Theoretical and Empirical Explanations," Journal of Economic Surveys, Wiley Blackwell, vol. 17(5), pages 709-748, December.
- Mary C. Daly & Bart Hobijn, 2010. "Okun’s law and the unemployment surprise of 2009," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue mar8.
- D. T. Nguyen & A. Mahinda Siriwardana, 1988. "The Relationship Between Output Growth and Unemployment: A Re-examination of Okun's Law in Australia," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 21(1), pages 16-27.
- J. Elhorst, 2010. "Applied Spatial Econometrics: Raising the Bar," Spatial Economic Analysis, Taylor & Francis Journals, vol. 5(1), pages 9-28.
- 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.
- Hans-Joachim Schalk & Jörg Lüschow & Gerhard Untiedt, 1997. "Wachstum und Arbeitslosigkeit : gibt es noch einen Zusammenhang?," Ifo Schnelldienst, Ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 50(17-18), pages 03-14, October.
- Oberst, Christian A., 2011. "A methodology approach to delineate functional economic market areas: With an iterative three-step spatial clustering procedure," CAWM Discussion Papers 55, Center of Applied Economic Research Münster (CAWM), University of Münster.
- 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.
- J. M. Casado-Diaz, 2000. "Local Labour Market Areas in Spain: A Case Study," Regional Studies, Taylor & Francis Journals, vol. 34(9), pages 843-856.
- Malley, Jim & Molana, Hassan, 2008. "Output, unemployment and Okun's law: Some evidence from the G7," Economics Letters, Elsevier, vol. 101(2), pages 113-115, November.
- Hubert, Frank, 1997. "Das Okun'sche Gesetz: Eine empirische Überprüfung für ausgewählte OECD-Länder unter besonderer Berücksichtigung der nationalen Arbeitsmarktordnungen," Arbeitspapiere des Instituts für Statistik und Ökonometrie 13, Johannes Gutenberg-Universität Mainz, Institut für Statistik und Ökonometrie.
- Aki Kangasharju & Jaakko Pehkonen, 2001. "Employment-output link in Finland : evidence from regional data," Finnish Economic Papers, Finnish Economic Association, vol. 14(1), pages 41-50, Spring.
- McCombie, J S L & de Ridder, J R, 1984. ""The Verdoorn Law Controversy": Some New Empirical Evidence Using U.S. State Data," Oxford Economic Papers, Oxford University Press, vol. 36(2), pages 268-284, June.
- Dauth, Wolfgang, 2010. "Agglomeration and regional employment growth," IAB Discussion Paper 201007, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
- Leopold Sogner & Alfred Stiassny, 2002. "An analysis on the structural stability of Okun's law--a cross-country study," Applied Economics, Taylor & Francis Journals, vol. 34(14), pages 1775-1787.
- Helmut Herwartz & Annekatrin Niebuhr, 2011. "Growth, unemployment and labour market institutions: evidence from a cross-section of EU regions," Applied Economics, Taylor & Francis Journals, vol. 43(30), pages 4663-4676.
When requesting a correction, please mention this item's handle: RePEc:ris:fcnwpa:2013_005. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Hendrik Schmitz)
If references are entirely missing, you can add them using this form.