Macroeconomics in January, the Growth

Burgen, Meyer and Tasci (2012) argue, however, that Okuns Law has not been broken, and that the pace of growth in the GDP is consistent with the decline in the unemployment rate. The nature of the ratio in Okuns Law is at issue in these different views about what the recent economic numbers mean for Okuns Law. The authors note that the most recent quarters worth of performance fall on the trendline created by comparing the two figures.

Even if Okuns Law is broken, there are potential reasons for this. For example, a decline in the GDP growth rate could coincide with more people removing themselves from the workforce. The unemployment rate would not be improved by people finding work, but rather by people giving up. Another potential explanation, given that the unemployment improvements in the past couple of months have not been strong, is that GDP growth is falling in industries that hire fewer workers, while gaining in industries that hire more workers.

This latter could actually be estimated with the most sophisticated set of BLS data.

There is no conclusive evidence as yet that Okuns Law has been violated. The law, in weak form, argues that sluggish GDP growth creates a constraint on employment growth. This is true, but as yet this constraint has not been met. The next couple of months are important to see if the macroeconomic trends continue, however, and Okuns Law is actually proven broken or not.

Works Cited:

Burgen, E., Meyer, B. & Tasci, M. (2012). An elusive relation between unemployment and GDP growth: Okuns law. Federal Reserve Bank of Cleveland. Retrieved May 8, 2012 from http://www.clevelandfed.org/research/trends/2012/0412/01labmar.cfm

Walker, S. (2012). Okuns law broken as U.S. jobless rate unexpectedly declines. Bloomberg. Retrieved May 8, 2012 from http://www.bloomberg.com/news/2012-02-13/okun-s-law-broken-as-u-s-jobless-rate-unexpectedly-declines-tom-keene.html.