The Unassuming Economist

A 2021 report published by the Financial Market Authority Liechtenstein discusses the weak relationship between national output and unemployment in the country, given by Okun’s law in economic theory. The report deliberates upon this phenomenon as follows:

“One explanation for the missing link between employment and the business cycle is a shortage of skilled labor. In addition to labor market regulations, the decoupling of the business cycle and employment can be explained by hiring costs associated with search frictions that tend to have increased over the last decades (Ball, Leigh, and Loungani, 2017). The Swiss Employment Barometer indicates that skilled labor is especially difficult to find in sectors such as metal or machinery industries, which are relatively large in Liechtenstein. Against this background, it is plausible that the decoupling between employment and business cycle dynamics progressed in a stronger manner and earlier in Liechtenstein compared to other advanced economies.”

Click here to read the full report.