A high positive output gap corresponds to low unemployment rates
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Peer-reviewed literature examining Okun's law confirms that economic output above potential (a positive output gap or growth) consistently correlates with lower unemployment rates.
Using the April 2020 Current Population Survey (CPS) micro dataset, we explore the racialized and gendered effects of the COVID-19 pandemic on the probability of being unemployed. The distribution of the pandemic-induced job losses for women and men or for different racial/ethnic categories has been studied in the recent literature. We contribute to this literature by providing an intersectional analysis of unemployment under COVID-19, where we examine the differences in the likelihood of unemployment across groups of White men, White women, Black men, Black women, Hispanic men, and Hispanic women. As a case of study of the COVID-19 recession, our work engages with the broader empirical literature testing the discrimination theories based on the unexplained gap after accounting for observable characteristics of women, men, and different races/ethnicities and their labor market positions. Controlling for individual characteristics such as education and age, as well as industry and occupation effects, we show that women of all three racial/ethnic categories are more likely to be unemployed compared to men, yet there are substantial differences across these groups based on different unemployment measures. Hispanic women have the highest likelihood of being unemployed, followed by Black women, who are still more likely to be unemployed than White women. We also examine if the ability to work from home has benefited any particular group in terms of lowering their likelihood of unemployment during the pandemic. We find that in industries with a high degree of teleworkable jobs, White women, Black men, and Hispanic men are no longer more likely to be unemployed relative to White men. However, Black women and Hispanic Women still experience a significantly higher probability of job loss compared to White men even if they are employed in industries with highly teleworkable jobs. As we control for both individual and aggregate factors, our results suggest that these differences are not simply the result of overrepresentation of women of color in certain industries and occupations; rather, unobservable factors such as discrimination could be at work.
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.
In this study, the relationship between economic growth and unemployment in the euro area (eurozone) is investigated in the light of Okun’s Law by using annual panel data set covering the period 2000-2012. Besides panel error correction and panel integration methods are used to test the link between unemployment and growth rate, unemployment hysteresis was examined by using several non-stationary panel unit root techniques for in all countries included to the study. Findings of this study propose that the Okun’s Law is valid. However, the cointegration coefficient is lower than the Okun’s coefficient calculated for the United States and other studies which was done for developed countries. The US is included in the analysis as it has the strongest economy in the world. In addition, since growth and unemployment are more volatile in developing countries, they are included in the analysis in order to compare with developed countries.
In this paper, the correlation between unemployment rate and real output for OECD countries was analyzed through the application of Okun’s Law and unemployment hysteresis 2007-2022. For this purpose, panel error correction, panel cointegration, ARDL Bounds Test and Granger causality techniques were preferred. In addition, unemployment hysteresis was examined with different panel unit root technique in OECD countries. The findings show that there is a long-term link among the variables, while supporting unemployment hysteresis in most OECD countries. Long-term findings show that Okun’s law is applicable. Causality analysis indicates that there is a one-way and negative relationship towards the unemployment rate. The estimation for the long-run coefficient shows that the increase in growth leads to a decrease in the unemployment rate. Short-term findings also support long-term outcomes.
The purpose of this work is to study Okun's law in a sample of North African economies (Algeria, Tunisia, Morocco, Libya, and Egypt) by examining the impact of the output gap on the unemployment gap and contributing to economic growth to reduce unemployment. These investigations aim to fill a significant gap in the empirical literature on the motives of Okun law in developing countries in general and North African countries in particular. The panel nonlinear ARDL model was used to examine the presence of Okun's law in North African economies over the period 1991-2023. The results of testing Okun's law in the sample of selected countries showed that Okun's law is valid for North African countries but in smaller amounts than those reached by Okun (between -2 and -3). Algeria recorded the highest value of -0.36. In addition, it was noted that the negative impact of GDP on unemployment rates is more significant than the positive impact in all the countries under study and is more critical in the cases of Algeria and Egypt. The study recommends prioritising economic growth through investments in labour-intensive sectors such as agriculture and industry, reducing bureaucratic inefficiencies, combating corruption, and fostering a favourable investment climate. Moreover, actions that can be taken involve improving training initiatives and implementing policies that promote the sector to stimulate the growth of stable employment opportunities. As a result, these empirical research findings regarding Okun’s Law are essential in shaping nations' economies and offer actionable suggestions for policymakers.
that a 3% increase in output would lead to a 1% decrease in unemployment. The structural or natural rate of unemployment is the level of unemployment that
Macroeconomics is a branch of economics that deals with the performance, structure, behavior, and decision-making of an economy as a whole. This includes regional, national, and global economies. Macroeconomists study aggregate measures of the economy, such as output or gross domestic product (GDP), national income, unemployment, inflation, consumption, saving, investment, or trade. Macroeconomics
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A single-equation empirical model describing a historical inverse relationship between rates of unemployment and corresponding rates of inflation that result within an economy.: #*
We leverage spatial variation in the severity of the Great Recession across the United States to examine its impact on mortality and explore the quantitative implications. We estimate that an increase in the unemployment rate of the magnitude of the Great Recession reduces the average annual age-adjusted mortality rate by 2.3%, with effects persisting for at least 10 years. Mortality reductions appear across causes of death and are concentrated in the half of the population with a high school degree or less. We estimate similar percentage reductions in mortality at all ages, with declines in elderly mortality thus responsible for about three-quarters of the total mortality reduction. Recession-induced mortality declines are driven primarily by external effects of reduced aggregate economic activity on mortality, and reduced air pollution appears to be a quantitatively important mechanism. Incorporating our estimates of procyclical mortality into a standard macroeconomic framework substantially reduces the welfare costs of recessions, particularly for people with less education, and at older ages.
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