Age effects in Okun’s law with different indicators of unemployment

ABSTRACT

We reassess the results from the literature on the relationship between the youth unemployment rate and GDP growth (Okun’s law), based on the concern that the unemployment rate is not an ideal indicator for teenagers and young adults. Using the unemployment ratio instead, we find that youth unemployment (15–24 years old) is not significantly more responsive to economic growth than prime-age (25–64) unemployment. However, compared to prime-age unemployment, teenagers’ unemployment (15–19) is relatively unresponsive, whereas young adult’s (20–24) unemployment is more strongly correlated with economic growth. These results are quite different than those obtained with the unemployment rate as the dependent variable.

KEYWORDS:

• Okun’s law
• unemployment ratio
• youth unemployment
• European Union
• economic growth

JEL CLASSIFICATION:

• E24
• C23

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ Banerji et al. (2014) use data from 1983 when available. However, for most countries, data is available since 2002.

Additional information

Funding

This work was supported by the Directorate General for Employment, Social Affairs and Inclusion [613256].