An empirical analysis of Okun’s law at a regional level: evidence from the NUTS 2 European regions

Afentoula G. Mavrodi, Georgios Kolias and Kostas Karamanis

Applied Economics, 2024, vol. 56, issue 56, 7600-7620

Abstract: In this study, Okun’s law is empirically assessed for the 257 NUTS2 (Nomenclature of Territorial Units for Statistics) European regions over the period 2010–2020, which is characterised by intense economic, societal and political changes as a consequence of the 2009 economic crisis, the austerity measures followed and the COVID-19 pandemic outbreak. Okun’s law equation is estimated using instrumental variables regression, employing a two-step methodology: (1) a panel regression estimator to obtain predicted variables of the endogenous variable (Gross Domestic Product (GDP) % change) by including the appropriate instruments in the model, (2) a linear-mixed fixed, random coefficient model and empirical Bayes predictions for the random intercepts and random slopes to obtain Okun’s coefficients. Study results confirm the Okun’s law for all regions under consideration and suggest that unemployment responses to economic growth differ among regions; either due to business cycle effects or structural labour-market factors. For regions depicting the strongest inverse impact of GDP on unemployment, a cyclical recovery is expected to be accompanied by a reduction in unemployment; while the weakest inverse relationship observed is associated with structural factors (i.e. industry composition, labour-force skills, long-term unemployment). At policymaking level, considering regional labour-market idiosyncrasies is of utmost importance to differentiate labour policies.

Date: 2024
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/00036846.2023.2288043 (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:applec:v:56:y:2024:i:56:p:7600-7620

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAEC20

DOI: 10.1080/00036846.2023.2288043

Access Statistics for this article

Applied Economics is currently edited by Anita Phillips

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