Macroeconomics in January, the Growth Essay

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Burgen, Meyer and Tasci (2012) argue, however, that Okun's 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 Okun's Law is at issue in these different views about what the recent economic numbers mean for Okun's Law. The authors note that the most recent quarters' worth of performance fall on the trendline created by comparing the two figures.

Even if Okun's 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.

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

There is no conclusive evidence as yet that Okun's 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 Okun's Law is actually proven broken or not.

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