Okun's law revisited. Is there structural unemployment in developed countries?

TL;DR

This paper re-estimates Okun's law in developed countries using recent data, finding a strong predictive relationship between GDP and unemployment but no evidence of structural unemployment.

Contribution

It introduces a re-estimation of Okun's law with recent data, accounting for structural breaks, and challenges the existence of structural unemployment in developed nations.

Findings

High prediction accuracy of unemployment changes from GDP data

Structural breaks may be due to monetary policy or measurement changes

No evidence of structural unemployment in studied countries

Abstract

Okun's law for the biggest developed countries is re-estimated using the most recent data on real GDP per capita and the rate of unemployment. Our results show that the change in unemployment rate can be predicted with a high accuracy. The link needs the introduction of a structural break which might be caused by the change in monetary policy or/and in measurement units. Statistically, the link between the studied variables is characterized by the coefficient of determination between 0.40 (Australia) and 0.84 (the USA). The residual errors can be associated with measurement errors. The obtained results suggest the absence of structural unemployment in the studied developed countries.