Search Results (12)

We develop the first disaggregation of Okun’s law that quantifies all of the information that is subsumed within its coefficients. The proposed method decomposes the coefficients into the sum of the direct effect of the change in output upon the unemployment rate, plus the indirect effects of the variations in the output per hour worked, the hours worked per employed person, the participation rate, and the size of the working-age population. With quarterly data for the United States from 1948 to 2024, we found that the value of the intercept in Okun’s relation is determined by the increases in working-age population and output per hour of work, along with the decrease in the number of hours worked per employed person, plus the growth of the participation rate until the 1990s and its subsequent decline. For its part, the slope, that is, the value of Okun’s coefficient, depends mainly upon the variations in output per hour of work and the hours per employed person. The other factors were scarcely relevant. Changes in these components caused the Okun’s relation to vary over time, showing a greater sensitivity of the unemployment rate to variations in production since the 2008 crisis. Full article

This paper examines the impact of per capita income, gross domestic product (GDP) growth, foreign direct investment (FDI), sectoral composition, and domestic credit on employment patterns in the Gulf Cooperation Council (GCC) countries from 2013 to 2023, based on “Okun’s law”. The dynamic data panel was analyzed using the generalized method of moments (GMM) and the ordinary least square (OLS) method. The research findings reveal that the agricultural sector’s contributions have significantly influenced the employment patterns in GCC countries, emphasizing the traditional role of agriculture in creating job opportunities. However, the contribution of the services and industrial sectors has no significant impact on employment patterns. Domestic credit and FDI inflows have significantly influenced employment patterns in GCC countries, underscoring their vital role in sustaining long-term economic stability. Per capita income and GDP growth did not significantly impact the employment pattern in the GCC countries during the study period. This research provides valuable insights to policymakers, highlighting the need to focus on the services and industrial sectors to promote their contribution to employment in GCC countries. The research findings also augment the literature by identifying the key economic indicators contributing to GCC countries’ employment creation. Full article

The results of previous research suggest that the elasticity of employment with respect to output is not constant within each phase of the business cycle and might depend on the maturity of that phase. Nevertheless, empirical evidence is almost non-existent. Using the unemployment gap as the proxy for the maturity of the business cycle phase, this paper seeks to determine heterogeneous elasticity across different business cycle phases. Furthermore, we aim to evaluate specific elasticities for separate demographic groups, considering gender, age, and educational attainment level, to identify the most vulnerable to jobless growth. Our specification is based on the employment version of Okun’s law, and estimates are provided for the whole EU-27 panel covering the period from 2000 to 2022. Our results suggest that elasticity is higher when the unemployment gap is positive and increasing and lower when the gap decreases, regardless of the business cycle phase. Thus, it can be argued that the possibility of growth increasing employment is very limited when the economy operates at its potential level (full employment) for all demographic groups. Full article

In this paper, we use the time-frequency wavelet estimators to analyze the robustness of Okun’s Law in the European Union across time and within various economic cycles. We extend the Okun’s Law literature as we focus on Europe, directly estimating the time-frequency varying Okun’s coefficient. We observe that Okun’s coefficient in Europe is unstable at short run (infra and annual cycles). The strength of Okun’s Law is time dependent at short run as linkages between growth and unemployment are stronger only during crisis times. Such instability is explained as unemployment predominates growth, leading to a positive coefficient and weaker strength. However, as the frequencies increase, the coefficient is more stable over time and the strength is higher and homogenous over time. Full article

This article is motivated by the recent debate raised on Okun’s Law regarding the divergence of the magnitude of Okun’s coefficient across countries and time horizons, its asymmetry and non-linearity, and the methodological issues associated with the estimate of this law. We tested the proposition that institutional quality—as measured by governance indicators—can explain this divergence and non-linearity. We estimated an augmented version of Okun’s Law showing the non-linear responsiveness of unemployment to fluctuations in GDP in the presence of institutional quality in a sample of 88 developing and emerging countries over the 1985–2019 period. Estimates are run using the 3sls regressor. We found evidence confirming that the responsiveness of unemployment to changes in output is all the more remarkable in countries with stronger institutions. We show that improving the institutional environment—as proxied by Government Effectiveness (GE), Control of Corruption (CC), Regulatory Quality (RQ), the Rule of Law (RL), and Voice and Accountability (VA)—is as important as increased economic growth in the strategy of reducing unemployment and reaching full employment in these countries, which is one of the 17 Sustainable Development Goals (SDGs) issued by the United Nations. Full article

Okun’s law is formulated as the ratio between GDP and unemployment (UE): β = f(GDP/UE). It is used to investigate the relations between output and labor input across regions or across business cycles. Based on results by James D. Hamilton we replaced the United States UE with employment (EM) for the years 1977 to 2021 and examined how employment changed relative to output during recessions and recoveries. We found that (i) EM was leading GDP before and lagging GDP after all recessions, except the 2020 recession. (ii) The β_E(9) = GDP/EM for rolling ordinary linear regression over 9 months decreases just after a recession and then recovers over 2- to 4-year periods. (iii) The two series showing that EM → GDP and β_E(9) < 0.5 coincided in the 34 months that partly preceded and partly followed five of six NBER recession dates, providing a probability of ≈0.0002 to coincide with the recessions by chance. Thus, the two series may be used to support forecasts of coming recessions. Since EM precedes GDP and labor productivity declines before recessions, a policy recommendation for avoiding “jobless recovery” is that employment should not increase more rapidly than the real economy. Full article

We propose a generalized susceptible-exposed-infected-removed (SEIR) model to track COVID-19 in Canadian provinces, taking into account the impact of the pandemics on unemployment. The model is based on a network representing provinces, where the contact between individuals from different locations is defined by a data-driven mixing matrix. Moreover, we use time-dependent parameters to account for the dynamical evolution of the disease incidence, as well as changes in the rates of hospitalization, intensive care unit (ICU) admission, and death. Unemployment is accounted for as a reduction in the social interaction, which translates into smaller transmission parameters. Conversely, the model assumes that higher proportions of infected individuals reduce overall economic activity and therefore increase unemployment. We tested the model using publicly available sources and found that it is able to reproduce the reported data with remarkable in-sample accuracy. We also tested the model’s ability to make short-term out-of-sample forecasts and found it very satisfactory, except in periods of rapid changes in behavior. Finally, we present long-term predictions for both epidemiological and economic variables under several future vaccination scenarios. Full article

The impact of economic growth on unemployment is commonly agreed and extensively studied. However, how age and gender shape this relationship is not as well explored, while there is an absence of research on whether education plays a role. We apply Okun’s law, aiming to estimate age-, gender- and educational attainment level-specific unemployment rate sensitivity to cyclical output fluctuations. Since the empirical literature provides evidence in favour of the non-linear impact of output change on the unemployment rate, supporting higher effects of recessions than that of expansions, we aim to enrich this analysis by estimating how the impact of positive/negative output change on the specific unemployment rate varies with the level of the total unemployment. The analysis is based on 28 European Union (EU) countries and covers the period of 1995–2019. The equations are estimated by least-squares dummy variables (LSDV), using Prais–Winsten standard errors. For the robustness check, we alternatively used Newey–West standard errors to address serial-correlations and heteroscedasticity, and the Arellano–Bond estimator for some specifications that assume dynamics in the panel. The results support previous findings of male- and youth-specific Okun’s coefficients and reveal that they significantly stand out just over the periods of negative output change. Additionally, we find that educational attainment level is an important factor explaining the heterogeneity of unemployment reaction to output change. Full article

The impact of economic fluctuations on the total unemployment rate is widely studied, however, with respect to age- and gender-specific unemployment, this relationship is not so well examined. We apply the gap version of Okun’s law, aiming to estimate youth unemployment rate sensitivity to output deviations from its potential level. Additionally, we aim to compare whether men or women have a higher equilibrium unemployment rate when output is at the potential level. Contrary to most studies on age- and gender-specific Okun’s coefficients, which assume that the effect of output on unemployment is homogenous, we allow a different effect to occur, depending on the output gap’s sign (positive/negative). The focus of the analysis is on 28 EU countries over the period of 2000–2018. The model is estimated by least squares dummy variable estimator (LSDV), using Prais–Winsten standard errors. We did not find evidence that higher equilibrium unemployment rates are more typical for men or for women. The estimates clearly show the equilibrium level of youth unemployment to be well above that of total unemployment, and this conclusion holds for both genders. We assess greater youth unemployment sensitivity to negative output shock, rather than to positive output shock, but when we take confidence intervals into consideration, this conclusion becomes less obvious. Full article

In this paper, we analyze, by means of the difference version of Okun’s law, the relationship between tourism sector growth and unemployment in Mexico during the period 2000Q2–2018Q4. The results show that tourism growth is a palliative for unemployment, whereas unemployment reduces the growth of the tourism sector. The results also show that the relationship between the mentioned variables becomes stronger during an economic crisis and weaker during expansion periods. Full article

We seek to determine whether a United States President’s job approval rating is influenced by the Misery Index. This hypothesis is examined in two ways. First, we employ a nonlinear model that includes several macroeconomic variables: the current account deficit, exchange rate, unemployment, inflation, and mortgage rates. Second, we employ probit and logit regression models to calculate the probabilities of U.S. Presidents’ approval ratings to the Misery Index. The results suggest that Layton’s model does not perform well when adopted for the United States. Conversely, the probit and logit regression analysis suggests that the Misery Index significantly impacts the probability of the approval of U.S. Presidents’ performances. Full article