Decomposing Okun’s law: evidence for the United States, 1970–2021

Oscar Peláez-Herreros

Applied Economics Letters, 2025, vol. 32, issue 1, 121-124

Abstract: This letter demonstrates that Okun’s relationship between the change in the unemployment rate and the percentage change in output can be expressed as a factorial decomposition and that, consequently, Okun’s coefficient is an estimate of the employment rate plus a bias due to the omission of relevant variables. This has been ignored by previous research, which started from a simplified formulation. In the United States from 1970 to 2021, we obtained an Okun coefficient of −0.475. This value is the sum of a sign-shifted estimate of the employment rate (−0.917) plus the indirect effects of the percentage change in the output per hour worked (0.076), hours worked per employed person (0.169), participation rate (0.149), and working age population (0.048). This decomposition helps to understand the relationship between the economic growth and the unemployment rate together with all the variables that condition it.

Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/13504851.2023.2257927 (text/html)
Access to full text is restricted to subscribers.

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:taf:apeclt:v:32:y:2025:i:1:p:121-124

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAEL20

DOI: 10.1080/13504851.2023.2257927

Access Statistics for this article

Applied Economics Letters is currently edited by Anita Phillips

More articles in Applied Economics Letters from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().