Employment, unemployment and real economic growth

TL;DR

This study models employment rates in major developed countries, showing they can be accurately predicted by a linear function of the logarithm of real GDP per capita, with structural breaks indicating policy or measurement changes.

Contribution

It introduces a linear model linking employment rates to real GDP per capita and identifies structural breaks affecting this relationship across countries.

Findings

High predictive accuracy with R^2 between 0.84 and 0.95.

Structural breaks occurred between 1975 and 1995.

Measurement errors likely influence residuals.

Abstract

We have modeled the employment/population ratio in the largest developed countries. Our results show that the evolution of the employment rate since 1970 can be predicted with a high accuracy by a linear dependence on the logarithm of real GDP per capita. All empirical relationships estimated in this study need a structural break somewhere between 1975 and 1995. Such breaks might be caused by revisions to monetary policy (e.g. inflation targeting) or/and changes in measurement units. Statistically, the link between measured and predicted rate of employment is characterized by the coefficient of determination from 0.84 (Australia) to 0.95 (Japan). The model residuals are likely to be associated with measurement errors.