Disaggregating Okun's law: decomposing the impact of the expenditure components of GDP on euro area unemployment

Arbeitspapier

This paper examines the usefulness of the Okun relationship as a “rule of thumb” for predicting changes in unemployment, as a result of changes in output. It argues that a disaggregated version of the Okun relationship – making use of the differential reaction of unemployment to changes in the various expenditure components of GDP - significantly enhances the capacity of the Okun relationship (in comparison to the aggregate “rule of thumb”) for predicting movements in unemployment. The paper tests this hypothesis using a dataset for the 17 euro area countries over the period 1996Q1-2013Q4. The results suggest that euro area unemployment is particularly sensitive to movements in the consumption component of GDP, while movements in foreign trade (exports and imports) have a much lower impact on unemployment developments. This reflects the highly labour-intensive nature of the services that represent the bulk of consumers’ expenditure, while the higher productivity manufacturing-related content of exports tends to be less labour intensive.

Object Details

• ISBN: 978-92-899-1155-9
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ECB Working Paper ; No. 1747

Classification and Topics

• Classification: Wirtschaft ; Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity ; Single Equation Models; Single Variables: Panel Data Models; Spatio-temporal Models
• Subject: expenditure components of GDP ; Okun relationship ; panel econometrics ; Unemployment

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Anderton, Robert ; Aranki, Ted ; Bonthuis, Boele ; Jarvis, Valerie
• Event: Veröffentlichung
• (who): European Central Bank (ECB)
• (where): Frankfurt a. M.
• (when): 2014

Further information

• Handle: http://hdl.handle.net/10419/154180
• Last update: 10.03.2025, 11:44 AM CET