Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/328560 
Year of Publication: 
2022
Citation: 
[Journal:] Economies [ISSN:] 2227-7099 [Volume:] 10 [Issue:] 10 [Article No.:] 260 [Year:] 2022 [Pages:] 1-16
Publisher: 
MDPI, Basel
Abstract: 
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 βE(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 βE(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.
Subjects: 
business cycles
employment
job search
jobless recovery
Okun's law
unemployment
US recessions
Persistent Identifier of the first edition: 
Additional Information: 
Correction available: https://doi.org/10.3390/economies11030075
Creative Commons License: 
cc-by Logo
Document Type: 
Article

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.