Beyond Okun's law: output growth and labor market flows

This paper studies the relationship between the change in the unemployment rate and output growth using an approach based on labor market flows. The framework shows why the Okun coefficient may be constant/time varying and/or symmetric/asymmetric and that the outcome depends upon the behavior of the labor flows in response to growth. The encompassing framework nests the conditions to determine the properties of the Okun coefficient without the need to rely on retrospective arbitrary dating of recessions. The framework also highlights the potential misspecification in conventional models of Okun's Law unless stringent conditions are assumed about the behavior of labor flows. The empirical analysis is based on the stock-consistent labor market flows data developed by the Bureau of Labor Statistics for the period 1990:2-2017:3.

Automated summary

This study examines the relationship between changes in the unemployment rate and output growth using labor market flow methods, highlighting the potential variations in the Okun coefficient and the importance of labor flow behavior in response to growth. The empirical analysis is based on labor market flow data from 1990:2 to 2017:3, showing the necessity of stringent assumptions about labor flow behavior in conventional models of Okun's Law.