HETEROGENOUS EXISTENCE AND SIZE OF OKUN’S LAW IN THE EUROPEAN REGIONS

Marie-Estelle Binet () and Jean-Sébastien Pentecôte ()
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Marie-Estelle Binet: AMURE - Aménagement des Usages des Ressources et des Espaces marins et littoraux - Centre de droit et d'économie de la mer - IRD - Institut de Recherche pour le Développement - IFREMER - Institut Français de Recherche pour l'Exploitation de la Mer - UBO EPE - Université de Brest - CNRS - Centre National de la Recherche Scientifique
Jean-Sébastien Pentecôte: CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique, UNICAEN - Université de Caen Normandie - NU - Normandie Université

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Abstract: This paper provides new evidence on the existence and magnitude of Okun's law across the European NUTS2 regions. We first estimate Okun's coefficients for each of the 228 regions over the period 2000-2020 using the Common Correlated Effects Mean Group (CCEMG) estimator. The results reveal significant heterogeneity, with only 42 regions demonstrating the expected negative relationship between unemployment and output, while it is insignificant in the remaining regions. We then introduce a double-hurdle model to explain two key aspects: a probit equation identifies the factors that contribute to the presence of Okun's law, while a tobit model uncovers the short-term or structural determinants of its strength where it exists. We find that the prevalence of Okun's law is influenced by the size of the informal labour sector, the labour inactivity trap, the share of value-added from agriculture, and the proportion of older workers. Meanwhile, the magnitude of the unemployment response to GDP growth is shaped by the inflation rate, working hours, the share of young workers, and labour mobility among low-skilled workers. The construction sector has opposite effects on the probability and strength of Okun's law. Thus, national and regional policies must be combined to effectively reduce unemployment.

Keywords: Regional convergence; NUTS2 regions; Double hurdle model; Okun's law coefficient (search for similar items in EconPapers)
Date: 2024-08-26
Note: View the original document on HAL open archive server: https://hal.science/hal-05679037v1
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Published in 63rd ERSA Annual Congress, University of Azores, Portugal, Aug 2024, Terceira, Portugal

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-05679037

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