The Unassuming Economist

From a paper by Maridueña-Larrea, Ángel and Martín-Román, Ángel L:

“This study assesses the empirical validity, heterogeneity, and spatial dependence of Okun’s Law
in a global setting. Using annual data for 163 countries over the period 1992–2023, we estimate
country-specific unemployment–output elasticities under two standard specifications (output-gap
and first-difference models) and allow for cyclical asymmetries by distinguishing expansionary and
recessionary phases. The results indicate that Okun’s coefficient is negative and statistically
significant in most countries, although its magnitude is highly heterogeneous and varies
systematically across income groups. Controlling for the common 2020 shock (COVID-19) does
not meaningfully alter statistical significance for most countries, but it generates economically
relevant shifts in the coefficient’s magnitude for a non-negligible subset, thus improving
cross-country comparability. We also document pronounced asymmetry: elasticities are, on
average, stronger during recessions than expansions, particularly among middle- and high-income
economies. Moran’s I statistics reveal positive and significant spatial autocorrelation in cyclical
sensitivities across alternative k-nearest-neighbour weighting matrices, with stronger dependence
during recessions. These findings motivate the design of countercyclical labour-market policies
tailored to structural heterogeneity and coordinated regionally during downturns.”