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Does One Law Fit All? Cross-Country Evidence on Okun’s Law

Author

Listed:
  • Laurence Ball

    (Johns Hopkins University)

  • Davide Furceri

    (University of Palermo
    IMF)

  • Daniel Leigh

    (IMF)

  • Prakash Loungani

    (IMF
    Policy Center for the New South)

Abstract

This paper compares the performance of Okun’s Law in advanced and developing economies. On average, the Okun coefficient—which measures the short-run responsiveness of labor markets to output fluctuations—is about half as large in developing as in advanced countries. However, there is considerably heterogeneity across countries, with Okun’s Law fitting quite well for a number of developing countries. We have limited success in explaining the reasons for this heterogeneity. The mean unemployment rate and the share of services in GDP are associated with the Okun coefficient, whereas other factors such as indices of overall labor and product market flexibility do not appear to play a consistent role.

Suggested Citation

  • Laurence Ball & Davide Furceri & Daniel Leigh & Prakash Loungani, 2019. "Does One Law Fit All? Cross-Country Evidence on Okun’s Law," Open Economies Review, Springer, vol. 30(5), pages 841-874, November.
    • Handle: RePEc:kap:openec:v:30:y:2019:i:5:d:10.1007_s11079-019-09549-3
    DOI: 10.1007/s11079-019-09549-3
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    References listed on IDEAS

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    5. Hassan, Mai & Schneider, Friedrich, 2016. "Size and Development of the Shadow Economies of 157 Countries Worldwide: Updated and New Measures from 1999 to 2013," IZA Discussion Papers 10281, Institute of Labor Economics (IZA).
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    Cited by:

    1. Porras-Arena, M. Sylvina & Martín-Román, Ángel L., 2023. "The heterogeneity of Okun's law: A metaregression analysis," Economic Modelling, Elsevier, vol. 128(C).
    2. Gutiérrez-Romero, Roxana, 2021. "Inequality, persistence of the informal economy, and club convergence," World Development, Elsevier, vol. 139(C).
    3. Jan Russnak & Georg Stadtmann & Lilli Zimmermann, 2023. "Does Okun's law suffer from COVID-19?Evidence from Europe and the US," Economics and Business Letters, Oviedo University Press, vol. 12(2), pages 165-171.
    4. Guénette, Justin Damien & Kose, M. Ayhan & Sugawara, Naotaka, 2022. "Is a Global Recession Imminent?," MPRA Paper 114627, University Library of Munich, Germany.
    5. Md. Noman Siddikee & Jawadur Rahim Zahid & Athya Sanjida & Polina Oshchepkova, 2022. "Sustainable economic growth and unemployment nexus of SDG 2030: Bangladesh in Asia," SN Business & Economics, Springer, vol. 2(1), pages 1-20, January.
    6. Hawkins, Raymond J. & Li, Yichu, 2022. "Okun loops and anelastic relaxation in the EU15," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 593(C).
    7. Asma Raies, 2023. "Sustainable Employment in Developing and Emerging Countries: Testing Augmented Okun’s Law in Light of Institutional Quality," Sustainability, MDPI, vol. 15(4), pages 1-13, February.
    8. Tamás Kiss & Hoang Nguyen & Pär Österholm, 2023. "Modelling Okun’s law: Does non-Gaussianity matter?," Empirical Economics, Springer, vol. 64(5), pages 2183-2213, May.
    9. Porras-Arena, M. Sylvina & Martín-Román, Ángel L. & Dueñas Fernández , Diego & Llorente Heras, Raquel, 2024. "Okun’s Law: The effects of the COVID-19 pandemic and the temporary layoffs procedures (ERTEs) on Spanish regions," INVESTIGACIONES REGIONALES - Journal of REGIONAL RESEARCH, Asociación Española de Ciencia Regional, issue 59, pages 105-125.
    10. Karlsson, Sune & Österholm, Pär, 2020. "A hybrid time-varying parameter Bayesian VAR analysis of Okun’s law in the United States," Economics Letters, Elsevier, vol. 197(C).
    11. M. Sylvina Porras-Arena & Mauricio A. Suárez Cal, 2021. "What’s behind Okun’s law? A multiple equation approach to the Uruguayan labour market," Documentos de Trabajo (working papers) 21-30, Instituto de Economía - IECON.
    12. Mahmoud Kraim & Tamat Sarmidi & Fathin Faizah & Norlin Khalid, 2023. "A sectoral specification of Okun’s law in oil-producing countries: evidence from panel ARDL model," Economic Change and Restructuring, Springer, vol. 56(4), pages 2385-2404, August.
    13. Zidong An & Tayeb Ghazi & Nathalie Gonzalez Prieto & Aomar Ibourk, 2019. "Growth and Jobs in Developing Economies: Trends and Cycles," Open Economies Review, Springer, vol. 30(5), pages 875-893, November.
    14. Andreescu Francesca Dana, 2024. "Empirical Evidences Regarding Okun's Law in the Central and Eastern Europe in the Post – Financial Crisis Period," Proceedings of the International Conference on Business Excellence, Sciendo, vol. 18(1), pages 358-366.
    15. Mindaugas Butkus & Kristina Matuzeviciute & Dovile Rupliene & Janina Seputiene, 2020. "Does Unemployment Responsiveness to Output Change Depend on Age, Gender, Education, and the Phase of the Business Cycle?," Economies, MDPI, vol. 8(4), pages 1-29, November.
    16. Davide Furceri & João Tovar Jalles & Prakash Loungani, 2020. "On the Determinants of the Okun’s Law: New Evidence from Time-Varying Estimates," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 62(4), pages 661-700, December.
    17. Colombo, Emilio & Furceri, Davide & Pizzuto, Pietro & Tirelli, Patrizio, 2024. "Public expenditure multipliers and informality," European Economic Review, Elsevier, vol. 164(C).
    18. Hawkins, Raymond J. & Li, Yichu, 2021. "Okun loops and anelastic relaxation in the G7," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 576(C).
    19. repec:ocp:rpaper:pp-0222 is not listed on IDEAS
    20. Russnak, Jan & Stadtmann, Georg & Zimmermann, Lilli, 2023. "Does Okun's law suffer from COVID-19? Evidence from Europe and the US - A research note," Discussion Papers 428, European University Viadrina Frankfurt (Oder), Department of Business Administration and Economics.
    21. Martin Boďa & Mariana Považanová, 2023. "How credible are Okun coefficients? The gap version of Okun’s law for G7 economies," Economic Change and Restructuring, Springer, vol. 56(3), pages 1467-1514, June.
    22. Mungase, Sachin & Nikam, Supriya & Kothe, Satyanarayan, 2024. "Structural Change and Labour Productivity in BRICS," MPRA Paper 121607, University Library of Munich, Germany.

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