Output, Unemployment and the Labour Market: The Okun Curve

David Mayes and Matti Virén

Chapter 6 in Asymmetry and Aggregation in the EU, 2011, pp 134-157 from Palgrave Macmillan

Abstract: Abstract After the Phillips curve, the Okun curve—the relationship between output and unemployment – is probably the most obviously nonlinear. In the growth phase of the economic cycle unemployment tends to fall steadily until the point when labour shortages are reached. In the downturn, even if it only represents slow growth, unemployment tends to rise disproportionately but with a lag. This inter-relationship, which is reflected in fluctuations in labour (and total factor) productivity, lies at the heart of the real business cycle literature and it has proved difficult to provide a totally convincing explanation that covers the whole cycle, the shocks that are experienced and the leads and lags that affect behaviour. Hiring and firing have costs. Hence firms try to take a longer-term view of their labour needs. In periods of rapid expansion they prefer to get the workforce to work longer hours and seek means of increasing productivity, albeit temporarily, if they think that the growth may be exceptional. Similarly in a downturn, if the pause is expected to be relatively short-lived, they will attempt to hold onto their labour force and reduce costs by cutting back on hours worked and limiting pay increases.

Keywords: Labour Market; Monetary Policy; Euro Area; Demand Shock; Phillips Curve (search for similar items in EconPapers)
Date: 2011
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

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:pal:palchp:978-0-230-30464-2_6

Ordering information: This item can be ordered from
http://www.palgrave.com/9780230304642

DOI: 10.1057/9780230304642_6

Access Statistics for this chapter

More chapters in Palgrave Macmillan Books from Palgrave Macmillan
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().