Does Growth Lower Unemployment? (Was Krugman Right Yet Again)?

 On July 9, 2011 when U.S. unemployment was at record highs, Paul Krugman wrote: “Why is unemployment remaining high? Because growth is weak — period, full stop, end of story.” Krugman went on to appeal to an old relationship known as Okun’s Law: “Historically, low or negative growth has meant rising unemployment, fast growth falling unemployment (Okun’s Law).” 

How well has Okun’s Law held up in the 3 ½ years since Krugman wrote? The evidence for the period 1947 to the present is shown below. It is evident that, for the U.S., Okun’s Law has held up quite well, as I have noted before

In a recent presentation at Oberlin College, I also looked at how well Okun’s Law holds across the world. If you don’t want to flip through the (fascinating) 100-slide presentation, I did a short summary this week for the IMF’s blog.

Posted by at 5:36 PM

Labels: Unemployment


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