The Pyramid of Okun's Coefficient for Italy

Abstract

Our aim is to develop a pyramid of Okun's coefficient by age and gender in the Italian labour force using a varying-coefficient model. The unemployment rate by age and gender -- useful information for estimating Okun's relationship -- is not available for Italy from official statistics. Therefore, we provide an estimation of the indicator using microdata for the 2005-2014 period from ISTAT, the Italian labour force survey. Okun's law is investigated using two measures of the unemployment rate: a traditional measure based on a labour force with and without work experience, and a new measure restricted to the labour force with experience. When Okun's relationship is estimated using the unemployment rate restricted to the labour force with experience, the young population is less sensitive to business cycles. As the workforce ages, this gap in sensitivity tends to shrink, particularly in that segment of the workforce more than 30 years of age. We also found that there are no significant differences by gender in the magnitude of Okun's coefficient among the youngest population when considering the unemployment rate restricted to the labour force with experience.

Keywords: Binary Generalised Extreme Value Additive model; Economic growth; Okun's coefficient; Unemployment rate; Varying-coefficient model

JEL Classification: C14; C25; E24; O40