a column by Guay Lim, Robert Dixon and Jan van Ours for VOX: CEPR’s Policy Portal
One version of Okun’s law specifies a relationship between the change in the unemployment rate and output growth.
This column uses US labour market flows data to investigate this relationship between 1990 and 2017. It finds that the net flows between employment and unemployment are sensitive to changes in growth but respond differently to positive and negative changes.
This implies that the US Okun relationship is stable but asymmetric, the effect of a change being larger in contractionary periods than in expansionary ones.
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Showing posts with label Okun's_law. Show all posts
Showing posts with label Okun's_law. Show all posts
Wednesday, 6 February 2019
Monday, 12 August 2013
Why did unemployment respond so differently to the global financial crisis across countries? Insights from Okun’s Law
an article by Sandrine Cazes and Sher Verick (International Labour Office (ILO) and IZA4, Genève, Switzerland) and Fares Al Hussami (Organisation for Economic Co-operation and Development (OECD)) published in IZA Journal of Labor Policy Volume 2 Number 10 (2013)
Abstract
The global financial crisis deeply impacted labour markets around the globe.
In the case of the United States, some commentators have argued that the subsequent rise in unemployment exceeded previous estimates of the elasticity of the unemployment rate with respect to output growth, a statistical relationship known as Okun’s law.
In contrast, others find a stable, long-term estimate of Okun’s coefficient implying that the deviation in unemployment during the crisis resulted from a larger output gap (not a structural shift in the trend). Ultimately, estimates of this relationship will depend on the methodology and data period utilised. Focusing more on short-term fluctuations, changes in unemployment are decomposed to identify the association with other channels of labour market adjustment (hours, productivity and labour force).
Results presented in this paper confirm the cross-country variation in the responsiveness of unemployment in the wake of the Great Recession. In the United States, Canada, Spain and other severely affected economies, estimates of Okun’s coefficient increased sharply, departing from pre-crisis levels.
In other countries, where unemployment has remained subdued, such as Germany and the Netherlands, the coefficient has fallen dramatically over the short-term.
While other factors can explain the heterogeneous impact of the global financial crisis on labour markets in OECD countries, this paper focuses on the contribution of labour market institutions (employment protection legislation) in explaining cross-country differences and shifts in the estimated Okun’s coefficient. In this regard, empirical evidence confirms that the responsiveness in the unemployment rate during the global downturn was lower in countries where workers are afforded greater employment protection such as Germany.
JEL classification: E24, J64, G01
Full text (PDF 18pp) with some very useful charts and graphs
Abstract
The global financial crisis deeply impacted labour markets around the globe.
In the case of the United States, some commentators have argued that the subsequent rise in unemployment exceeded previous estimates of the elasticity of the unemployment rate with respect to output growth, a statistical relationship known as Okun’s law.
In contrast, others find a stable, long-term estimate of Okun’s coefficient implying that the deviation in unemployment during the crisis resulted from a larger output gap (not a structural shift in the trend). Ultimately, estimates of this relationship will depend on the methodology and data period utilised. Focusing more on short-term fluctuations, changes in unemployment are decomposed to identify the association with other channels of labour market adjustment (hours, productivity and labour force).
Results presented in this paper confirm the cross-country variation in the responsiveness of unemployment in the wake of the Great Recession. In the United States, Canada, Spain and other severely affected economies, estimates of Okun’s coefficient increased sharply, departing from pre-crisis levels.
In other countries, where unemployment has remained subdued, such as Germany and the Netherlands, the coefficient has fallen dramatically over the short-term.
While other factors can explain the heterogeneous impact of the global financial crisis on labour markets in OECD countries, this paper focuses on the contribution of labour market institutions (employment protection legislation) in explaining cross-country differences and shifts in the estimated Okun’s coefficient. In this regard, empirical evidence confirms that the responsiveness in the unemployment rate during the global downturn was lower in countries where workers are afforded greater employment protection such as Germany.
JEL classification: E24, J64, G01
Full text (PDF 18pp) with some very useful charts and graphs
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