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Modeling Unemployment And Employment In Advanced Economies: Okun’S Law With A Structural Break

Author

Listed:
  • Ivan KITOV

    (Institute for the Dynamics of the Geopsheres, Russia)

  • Oleg KITOV

    (Department of Economics, University of Oxford, UK)

Abstract

Using a modified version of Okun’s law, we have modeled the rate of unemployment and the employment/population ratio in several largest developed countries: Australia, Canada, France, Japan, the UK, and the U.S. Our results show that the evolution of the (un)employment rate since the early 1970s can be predicted with a high accuracy by a linear dependence on the logarithm of real GDP per capita. All empirical relationships estimated in this study need a structural break somewhere between 1975 and 1995. We argue that these breaks are of artificial nature and were caused by similar changes in measurement procedures in all studied counties: the deviation between the GDP deflator and CPI and the structural breaks in the modified Okun’s law are synchronous. Statistically, the link between measured and predicted rate of (un)employment is characterized by R2 from 0.84 (Australia) to 0.95 (Japan). The model residuals are likely to be associated with measurement errors.

Suggested Citation

  • Ivan KITOV & Oleg KITOV, 2012. "Modeling Unemployment And Employment In Advanced Economies: Okun’S Law With A Structural Break," Theoretical and Practical Research in the Economic Fields, ASERS Publishing, vol. 3(1), pages 26-41.
    • Handle: RePEc:srs:jtpref:v:3:y:2012:i:1:p:26-41
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    Citations

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    Cited by:

    1. Kitov, Ivan & KItov, Oleg, 2013. "Inflation, unemployment, and labor force. Phillips curves and long-term projections for Japan," MPRA Paper 49388, University Library of Munich, Germany.
    2. KARGI, Bilal, 2014. "Okun’s Law and Long Term Co-Integration Analysis for OECD Countries (1987-2012)," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 119, pages 77-85.
    3. Matiur Rahman & Muhammad Mustafa, 2017. "Okun’s law: evidence of 13 selected developed countries," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 41(2), pages 297-310, April.
    4. Ivan Kitov & Oleg Kitov, 2013. "Inflation, unemployment, and labour force. Phillips curves and long-term projections for Austria," Papers 1310.1786, arXiv.org.
    5. Ousama Ben-Salha & Zouhair Mrabet, 2019. "Is Economic Growth Really Jobless? Empirical Evidence from North Africa," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 61(4), pages 598-624, December.
    6. Abiodun O. Folawewo & Oluwafemi M. Adeboje, 2017. "Macroeconomic Determinants of Unemployment: Empirical Evidence from Economic Community of West African States," African Development Review, African Development Bank, vol. 29(2), pages 197-210, June.
    7. Daňová Monika & Vozárová Ivana Kravčáková, 2021. "Does the instability of economic development affect the elasticity of the labour market?," Review of Economic Perspectives, Sciendo, vol. 21(3), pages 291-308, September.

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