A sectoral approach to Okun’s Law

Wayne Apap and Daniel Gravino

Applied Economics Letters, 2017, vol. 24, issue 5, 319-324

Abstract: The study adds to the existing literature on the relationship between output and unemployment by using a sectoral specification of Okun’s Law to capture the differential sensitivity of the unemployment rate to output developments in the services and manufacturing sectors. Using quarterly data for the period between 2000 and 2012, we show that Malta’s unemployment rate has been more sensitive to output developments in the services sector than to those in the manufacturing sector. We use different equation specifications and the youth unemployment rate to show that the impact resulting from developments in the manufacturing sector occurs mainly via lay-offs while developments in the services sector affect the unemployment rate via the hiring of new entrants into the labour market.

Date: 2017
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DOI: 10.1080/13504851.2016.1186789

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