Skip to main content Skip to main content
SHARE   Share on Twitter Share on Facebook Share on LinkedIn Email

A State-Level Analysis of Okun's Law

Okun''s law is an empirical relationship that measures the correlation between the deviation of the unemployment rate from its natural rate and the deviation of output growth from its potential. This relationship is often referred to by policy makers and used by forecasters. In this paper, we estimate Okun''s coefficients separately for each U.S. state using an unobserved components framework and find variation of the coefficients across states. We exploit this heterogeneity of Okun''s coefficients to directly examine the potential factors that shape Okun''s law, and find that indicators of more flexible labor markets (higher levels of education achievement in the population, lower rate of unionization, and a higher share of non-manufacturing employment) are important determinants of the differences in Okun''s coefficient across states.

Read Full Text

https://doi.org/10.20955/wp.2015.029


Subscribe to our newsletter


Follow us

Twitter logo Google Plus logo Facebook logo YouTube logo LinkedIn logo
Back to Top