The dynamics of Okun’s law: cross-country analysis across economic cycles (1980–2023)

Ihlas Sovbetov ()
Additional contact information
Ihlas Sovbetov: Istanbul Aydin University

Empirica, 2025, vol. 52, issue 4, No 3, 687-720

Abstract: Abstract Economic dynamics vary across business cycles, particularly in the relationship between output and unemployment. This study examines Okun’s Law across 92 countries from 1980 to 2023, focusing on its validity and stability during expansion, recession, and recovery. The results confirm that Okun’s Law broadly holds, but its strength is highly regime- and country-specific. A consistent pattern emerges: the Okun coefficient is steeper during recessions, flatter during expansions, and statistically weaker or insignificant during recoveries, consistent with jobless recoveries. Cross-country evidence further reveals that high-income and OECD economies exhibit robust Okun relationships across regimes, while many low-income economies display weak or non-significant responses due to informality and structural labor market rigidities. Dynamic specifications confirm short-run stickiness in employment, with cumulative effects reinforcing the asymmetric adjustment of unemployment to output. By introducing a three-regime empirical design and incorporating post-pandemic labor market dynamics, this study provides the most comprehensive cross-country assessment of Okun’s Law to date. The findings underscore the importance of regime-contingent policy strategies: countercyclical support during recessions, targeted incentives during recoveries, and structural reforms in economies with weak output–employment linkages.

Keywords: Okun's law; Business cycles; Unemployment; Recession; Recovery (search for similar items in EconPapers)
JEL-codes: E24 E32 J64 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s10663-025-09662-2 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:empiri:v:52:y:2025:i:4:d:10.1007_s10663-025-09662-2

Ordering information: This journal article can be ordered from
http://www.springer. ... ration/journal/10663

DOI: 10.1007/s10663-025-09662-2

Access Statistics for this article

Empirica is currently edited by Fritz Breuss and Fritz Breuss

More articles in Empirica from Springer, Austrian Institute for Economic Research, Austrian Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().