Prague Economic Papers - Articles first published online

Okun´s Law over the Business Cycle: Does it Change in the EU Countries after the Financial Crisis?

DOI: https://doi.org/10.18267/j.pep.694

[full text (PDF)]

Marcel Novák, Ľubomír Darmo

Published online: 2. 11. 2018

The relationship between economic growth and unemployment is well known. The growth of gross domestic product leads to a fall in unemployment and, reversely, its fall is associated with a rise in unemployment. The paper deals with the estimation of Okun’s coefficient for EU28 countries between years 2001 and 2014. Additionally, two sub-periods are also analysed. These represent the pre-crisis period 2001–2007 and the post-crisis period 2008–2014. The result shows higher Okun’s coefficient in the post-crisis period. Unemployment in that period responded to changes in gross domestic product more sensitively than in the pre-crisis period. As a result, in order to decrease unemployment, lower economic growth was necessary in the post-crisis period compared to the pre-crisis one.

Keywords: business cycle, Okun’s law, unemployment

JEL Classification: E24, E32

References:

Boďa, M., Medveďová, P., Považanová, M. (2015). (A)symetria v Okunovom zákone v štátoch

Vyšehradskej skupiny. Politická Ekonomie, 63(6), 741–758, https://doi.org/10.18267/j.polek.1024

Caraiani, P. (2012). Asymmetry in the Okun Coefficient in Romanian Economy. Ekonomie, 15(4), 49–55.

D’Apice, P. (2014). The Slovak Labour Market in the Wake of the Crisis: Did Okun’s Law Hold? ECFIN Country Focus, 11(4), 8.

Doğru, B. (2013). The Link between Unemployment Rate and Real Output in Eurozone:

A Panel Correction Approach. Procedia – Social and Behavioral Science, 99(2013), 94–103,

https://doi.org/10.1016/j.sbspro.2013.10.475

Durech, R., Minea, A., Mustea, L., Slusna, L. (2014). Regional Evidence on Okun’s Law in Czech Republic and Slovakia. Economic Modelling, 42, 57–65, https://doi.org/10.1016/j.econmod.2014.05.039

Gabrisch, H., Buscher, H. (2005). The Unemployment-Growth Relationship in Transition Countries. IWH Discussion Papers No. 5/2005, https://doi.org/10.2139/ssrn.2031485

Hronová, S., Fisher, J., Hindls, R., Sixta, J. (2009). Národní účetnictví. Nástroj popisu globální ekonomiky. Praha: C. H. Beck. ISBN 978-80-7400-153-6.

Izyumov, A., Vahaly, J. (2002). The Unemployment-Output Trade off in Transition Economies:

Does Okun’s Law Apply? Economics of Planning, 35(4), 317–331.

Knotek, E. S. (2007). How Useful Is Okun’s Law? Federal Reserve Bank of Kansas City, Economic Review, Fourth Quarter, 73–103.

Levine, L. (2013). Economic Growth and the Unemployment Rate. CRS Report for Congress.

Congressional Research Service, 7-5700, 10.

Maitah, M., Toth, D., Kuzmenko, E. (2015). Exploring the Relationship between Economic

Growth and Employment in the Czech Republic and Belgium. Review of European Studies,

(7)11, 115–124, https://doi.org/10.5539/res.v7n11p115

Makúch, J. (2017). Structural Reforms – Past and Present (Never-ending Story …).”

In: Conference on European Economic Integration (CEII) 2017. A Modern Take on Structural

Reforms – Past and Future Challenges for CESEE and Europe at Large. Oesterreichische

Nationalbank; November 20–21, 2017; Vienna.

Mielcová, E. (2011). Economic Growth and Unemployment Rate of the Transition Country –

the Case of the Czech Republic 1996–2009. E+M: Ekonomie a Management, 1, 29–37.

Owyang, M. T., Sekhposyan, T. (2012). Okun’s Law over the Business Cycle: Was the Great

Recession All That Different? Federal Reserve Bank of St. Louis Review, 94(5), 399–418,

https://doi.org/10.20955/r.94.399-418

Owyang, M. T., Vermann, K. E. (2013). Okun’s Law in Recession and Recovery. Economic

SYNOPSES Short Essays and Reports on the Economic Issue of the Day. Federal Reserve

Bank of St. Louis. No. 23, 2 p, https://doi.org/10.20955/es.2013.23

Okun, A. M. (1962). Potential GNP: Its Measurement and Significance. American Statistical

Association, Proceedings of the Business and Economics Statistics Section, 98–103.

Washington D.C.: American Statistical Association.

Özel, H. A., Sezgin, F. H., Topkaya, Ö. (2013). Investigation of Economic Growth and

Unemployment Relationship for G7 Countries Using Panel Regression Analysis. Journal

of Business and Social Science, 4(6), 9.