scholarly journals Okun’s Law and Long Term Co-Integration Analysis for OECD Countries (1987-2012)

2016 ◽  
Vol 6 (1) ◽  
pp. 39-46 ◽  
Author(s):  
Bilal Kargı
Keyword(s):  
Economic Growth ◽  
Growth Rate ◽  
Unemployment Rate ◽  
High Growth ◽  
Oecd Countries ◽  
Population Increase ◽  
Okun’S Law ◽  
Okun's Law ◽  
Term Relation

Even though, there are so many so long discussions on the relation between population increase and economic growth, today, general opinion tends to believe that there is a direct relation between population increase and economic growth. This opinion is supported by some empirical studies. Despite an economical growth caused by directly with population growth, it is known that there is a reverse relation between unemployment and growth known as Okun’s Law. This relation, suggesting that every 1 point decrease in unemployment induces a 3 point increase in growth, is tested for many countries. In this study, this hypothesis of Okun is examined and it is found to be true for selected 23 countries, even with the difference in coefficients. At the same time, long term relation between growth and unemployment is tested with the use of time series analysis and long term relation is found for 14 countries. Additionally, tests done for all 34 OECD countries showed that reversed relation between unemployment and growth is valid and they are co-integrated in long run. In this study, countries are categorized according to growth rate as “low”, “normal” and “high” and a consistent unemployment rate for countries with high growth rate could not be seen. In the case of countries with lowest growth rate, generalization that they have quite high unemployment rate can be made.

scholarly journals Validity of Okun's law in Sri Lanka

2021 ◽  
Vol 2 (2) ◽  
pp. 118-133
Author(s):  
Perenparaj Nadeshan ◽  
Gnanachandran Gnanachandran
Keyword(s):  
Economic Growth ◽  
Growth Rate ◽  
Sri Lanka ◽  
Error Correction ◽  
Unemployment Rate ◽  
Gdp Growth ◽  
Okun’S Law ◽  
Correction Model ◽  
Okun's Law ◽  
The Relationship

The main goal of our research is to find out a relationship between the unemployment rate and the GDP growth rate in Sri Lanka according to Okun’s law and to know whether it can still be used as the best rule of thumb. This empirical analysis has employed the difference model, dynamic model, Error Correction Model (ECM) and Vector Error Correction Model (VECM) to validate the relationship between the unemployment rate and economic growth suggested by Okun's Law. The study is based on Quarterly data from 2004 Q1 to 2019 Q4. The results obtained through the application of varies econometric techniques such as Ordinary least square (OLS), Engel-Granger approach and cointegration procedure. The study finds that, Okun’s law is supported only by the cointegration analysis as expected by the Okun’s law in Sri Lanka. However, all other versions were reported negative Okun’s law coefficient signs while these results are not statistically significant. Overall this study is not able to found enough evidence to prove the inverse relationship between unemployment rate and economic growth rate in short run and able to found that Okun’s law can still be used as the best rule of thumb to describe the relationship between the unemployment and GDP growth in long term in Sri Lanka.

Is there a Core of Macroeconomics that Euro Area Forecasters Believe In?

2012 ◽  
Vol 13 (1) ◽  
pp. 103-115 ◽  
Author(s):  
Christian Pierdzioch ◽  
Georg Stadtmann ◽  
Jan-Christoph Rülke
Keyword(s):  
Growth Rate ◽  
Unemployment Rate ◽  
Euro Area ◽  
Inflation Rate ◽  
Phillips Curve ◽  
Practical Relevance ◽  
Okun’S Law ◽  
Macroeconomic Theory ◽  
Quantity Theory ◽  
Okun's Law

Abstract The quantity theory of money, Okun’s law, and the Phillips curve are cornerstones of macroeconomic theory. But are they also of practical relevance? Using survey data for the euro area, we found that professional economists’ forecasts are consistent with a version of the quantity theory in which forecasts of the growth rate of money supply correlate in a proportional way with forecasts of the inflation rate. We also found that forecasts of changes in the unemployment rate and forecasts of the growth rate of real output are consistent with Okun’s law. Evidence of a systematic link between forecasts of the inflation rate and forecasts of the unemployment rate, however, is not strong.

scholarly journals The Validity of Okun’s Law, Case of Jordan

2017 ◽  
Vol 13 (28) ◽  
pp. 470
Author(s):  
Saleh Al-hosban ◽  
Mohmmad Edienat
Keyword(s):  
Economic Growth ◽  
Unemployment Rate ◽  
Negative Relationship ◽  
Economic Policies ◽  
Okun’S Law ◽  
Okun's Law ◽  
Real Gdp ◽  
Economic Methods ◽  
Econometric Tests ◽  
The Relationship

The main aim of this study is to empirically examine ,investigate and test the relationship between unemployment rate and economic growth within Jordanian economy over the period of time (1982-2016), in order to examine the validity of Okun’s law, which suggests a negative relationship between unemployment rate and economic growth, several economic methods are employed by using descriptive statistics, as well as some econometric tests, in order to analyze the variables under study . The empirical results of this study show a negative relationship between unemployment and GDP in the period 1982-2016 in Jordanian economy, which is consistent with Okun’s law. In other word, this study offered an additional empirical evidence to confirm the validity of the Okun’s law in the case of Jordan over the period 1982-2016.So any attempt to increase economic growth through some economic policies such as expansion in spending would reduce unemployment rate, where the Okun’s coefficient of GDP with respect to unemployment rate is- 0.004, such that an increase of 100 million Jordanian Dinars in the Real GDP will cause 40% decrease in the unemployment rate, which is about half percent in unemployment rate in the next. The findings of this thesis may help economists and policymakers when adapting policies in order to adjust unemployment level in the economy.

scholarly journals Okun’s Law in Austria

2017 ◽  
Vol 8 (2) ◽  
pp. 97-110 ◽  
Author(s):  
Michael Christl ◽  
Monika Köppl-Turyna ◽  
Dénes Kucsera
Keyword(s):  
Growth Rate ◽  
Labor Market ◽  
Labor Force ◽  
Unemployment Rate ◽  
Gdp Growth ◽  
Okun’S Law ◽  
Okun's Law

AbstractWe estimate the classic and the dynamic variant of Okun’s law for the Austrian labor market. We find that, for recent periods, the growth rate necessary to stabilize the unemployment rate equals 2.8 percent. Moreover, we find that the rate has been growing in recent quarters due to the increasing labor force size and the effects of the crisis. The latest prediction of the employment threshold lies above 3 percent, much above forecasted GDP growth up to 2017.

scholarly journals UNEMPLOYMENT AND ECONOMIC GROWTH IN NIGERIA: DOES OKUN’S LAW MATTERS?

10.23856/3203 ◽  
2019 ◽  
Vol 32 (1) ◽  
pp. 26-37
Author(s):  
Oluwaseyi Adedayo Adelowokan ◽  
Adeteji Olusegun Оkutimiren
Keyword(s):  
Economic Growth ◽  
Population Growth ◽  
Unemployment Rate ◽  
Government Expenditure ◽  
Output Growth ◽  
Sustainable Growth ◽  
Okun’S Law ◽  
Okun's Law ◽  
The Government ◽  
The Impact

The situation in Nigeria is rapid population growth with high level of unemployment rate. The theoretical proposition of the Okun’s law suggests an indirect relationship existing between unemployment and output growth. This study tests the validity of Okun’s law by examining the impact of youth employment generation on sustainable growth in the Nigerian economy. We modeled real gross domestic product against unemployment rate, population growth, labour and government expenditure between 1986 and 2017. The empirical findings show that there is short- and long- run relationship existing between unemployment rate, population growth and output growth in Nigeria. Hence, study recommends that the activities by the government in promoting economic growth in the country should be geared towards promoting employment for the people in other sector.

scholarly journals Economic Growth and Unemployment Rate. Case of Albania

2014 ◽  
Vol 1 (1) ◽  
pp. 217 ◽  
Author(s):  
Emirgena Nikolli
Keyword(s):  
Economic Growth ◽  
Unemployment Rate ◽  
Negative Impact ◽  
Okun’S Law ◽  
Okun's Law ◽  
The People ◽  
The Relationship ◽  
Day By Day ◽  
Percent Decrease ◽  
Rate Case

This thesis studies the relationship between the economic growth and the unemployment rate in Albania. This relation is known as Okun's law, which states that 1 percent decrease in unemployment; GDP will increase by 3 percent. Albania is one of the countries that have a sluggish development and impact of unemployment is negative in the economy of the country. At the same time the economy itself effect the employment of the people. The unemployment occurs when people are without work or seeking work. During recession there is a high unemployment rate. Even some peaks of the development like in the Total Factor Productivity, integration or infrastructure there have been recession and a bad time for the Albania too. This affected the investments, the business and by lowering their profits they are obligated to lay off employees. So the unemployment rate starts to rise up. This study takes in consideration the years from 2000 to 2013 when the unemployment was rising day by day with negative impact in the economy. This thesis introduces the general relationship between gross domestic product and unemployment. The methodology used a simple regression and takes the economic growth as dependent variable and the unemployment rate as independent. The observed result didn't explain the Okun's law for Albania. The main reason is the current crises that prevent the improvement of economic conditions.

scholarly journals Is Economic Growth Working for Jobs? An Investigation of the Employment Generating Capacity of the Nigerian Economy

2020 ◽  
Vol 3 (4) ◽  
Author(s):  
Olumuyiwa Olamade ◽  
Keyword(s):  
Economic Growth ◽  
Growth Rate ◽  
Ordinary Least Squares ◽  
Gdp Growth ◽  
Okun’S Law ◽  
Okun's Law ◽  
Development Indicators ◽  
Long Run ◽  
Generating Capacity ◽  
Short Run

Nigeria has been best with the incidence of concurrent unemployment and a good run of economic growth thus calling to question the efficacy of economic growth to create jobs in the country. In this paper, we examine first whether there exists any relationship between economic growth and employment in the manner espoused by Okun’s law and then interpret the coefficient of the relationship as indicative of the capacity of the economy to translate growth into employment. Due to the unreliability of unemployment data in many developing countries we use the growth rate of employment as the dependent variable and thus expect to find a positive relationship with economic growth. A second model was specified with the growth rate of employment-to-population ratio as the dependent variable. Data were extracted from World Development Indicators and Penn’s World Table for 1961 to 2017. All the variables were level stationary from two different tests of their statistical properties. We thus estimate the Ordinary Least Squares for the short-run coefficients and explore the robustness of the ARDL to different orders of integration for the long-run form. Both establish the application of Okun’s law to Nigeria with the employment elasticity of GDP growth too small to generate discernible growth in employment. We estimated an average GDP growth of 16.22% over the long-run for the economy to keep a steady growth in employment.

scholarly journals Investigating Okun’s Law in SAARC Countries: An ARDL Approach

2020 ◽  
Author(s):  
Md. Abu Hanif ◽  
Zobayer Ahmed ◽  
Hakan Acet ◽  
Savaş Çevik
Keyword(s):  
Growth Rate ◽  
South Asian ◽  
Unemployment Rate ◽  
Negative Relationship ◽  
Okun’S Law ◽  
The South ◽  
Okun's Law ◽  
Asian Region ◽  
Long Run ◽  
South Asian Region

Abstract Purpose: The aim of this paper is to test the applicability of Okun’s law in SAARC (South Asian Association for Regional Cooperation) counties. It also intends to find the long-run association between unemployment rate and growth rate and investigate the impact of growth rate on unemployment in the South Asian Region.Design/methodology/approach: The study uses annual time series data for eight SAARC countries, from 1991 to 2015. To meet the objectives of the research, the graphical illustration of trend with descriptive statistics are followed by econometric analysis. Based on the stationarity of the variables, an autoregressive distributive lag (ARDL) model has been estimated to test the long-run relationship between unemployment and growth.Findings: The results indicate that per capita GDP negatively influences the unemployment rate in the long run only in three member countries of SAARC, namely- Afghanistan, India and Sri Lanka and in the South Asian Region in aggregate. This paper also finds a negative relationship between the growth rate and unemployment rate in Bangladesh, but this association is not statistically significant. The study doesn’t find any negative relationship between the two variables in Bhutan, Maldives, Nepal and Pakistan. The study discovers the validity of Okun’s law, but the attained Okun coefficient is less than that of the actual Okun coefficient, documented by Arthur Okun. Another substantial evidence is that the significance of the connection between the growth rate and unemployment rate varies among the SAARC countries.Research limitations: The main limitation of this paper is the unavailability of data for Afghanistan compared to other SAARC countries. Originality/value: This paper is unique as it tests the validity of Okun’s law in every member country of SAARC and as a region of South Asia. To date, no such study like this has been found in the body of literature which finds long-run relationship in all SAARC countries.JEL Classification: E24, J64, O11, O40.

scholarly journals The nexus between unemployment and economic growth in Serbia: Does Okun's law hold?

2020 ◽  
Vol 68 (7-8) ◽  
pp. 484-499
Author(s):  
Vladimir Mihajlović
Keyword(s):  
Economic Growth ◽  
Unemployment Rate ◽  
Employment Policy ◽  
Okun’S Law ◽  
Okun's Law ◽  
Real Gdp ◽  
The Republic ◽  
The Relationship ◽  
Nonlinear Autoregressive ◽  
Production Approach

Starting from the empirically-based postulate that economic growth, through increasing labour demand and employment, reduces the unemployment rate, this study investigates the relationship between real GDP growth and the unemployment rate in the Republic of Serbia. The analysis is motivated by the fact that the unemployment rate in Serbia has significantly decreased over the last decade (especially after 2014), despite relatively modest rates of economic growth. These tendencies indicate the possibility of a nonlinear (asymmetric) relationship between the two variables, which has important implications for designing a more efficient economic and employment policy. Applying both linear and nonlinear Autoregressive Distributed Lags models (ARDL and NARDL) to quarterly data in the 2008-2019 period reveals that the relationship between economic growth and unemployment rate is negative, as suggested by Okun's law, but also that there is a profound asymmetry in this relationship. Namely, a 1% increase in the real output leads to a 4.74% decrease in the unemployment rate, whereas a decrease in output by the same percentage increases the unemployment rate by only 1.52%. Further analysis, based on investigating the relationship between GDP decomposed by the expenditure and production approach, and the unemployment rate, indicates that Okun's law asymmetry in the economy of Serbia is most affected by domestic demand, primarily private and government expenditures on the products of labour-intensive activities, such as services, agriculture, and industry.

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