Okun’s Law Revisited within the Context of High Eurozone Unemployment: A Note
2 Pages Posted: 15 Jul 2016
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Okun’s Law Revisited within the Context of High Eurozone Unemployment: A Note
Okun’s Law Revisited Within the Context of High Eurozone Unemployment: A Note
Date Written: July 14, 2016
Abstract
With unemployment in the Eurozone running at over 10%, with some countries like Spain and Greece experiencing in excess of 45% youth unemployment, the loss in potential economic growth is huge. This is coupled with high unemployment’s damaging social cost which brings depravity to millions. The purpose of this note is to bring attention to the link between economic growth in unemployment across the globe then apply that to the EU member states by analysing this issue from a global perspective. For 185 countries in the world, a strongly negative association [26% Correlation at 1% significance level] is found. More importantly, my results strongly support Okun’s Law: that a 1% drop in unemployment leads to a ¼ % increase in growth, in crude terms, across the globe. Quite clear from the rudimentary but robust analysis is that there is a strong link between unemployment and economic growth. The high levels of unemployment in the Eurozone member states needs to be addressed within the context of economic reform so as to alleviate the pain and suffering among the long-term disempowered youth as a priority.
Keywords: Okun's Law, Eurozone, Unemployment, Federal Reserve Bank, Ben Bernanke, Economic Growth
JEL Classification: E23
Suggested Citation: Suggested Citation