AN EXAMINATION OF OKUN'(tm)S LAW: EVIDENCE FROM EUROPEAN TARGET COUNTRIES

In this paper Okun'(tm)s law is tested for six European selected countries in order to compare the responsiveness of unemployment to economic growth over the period 1981-2010. In the first section there is a survey of scientific works that have observed the empirical relationship between growth and unemployment. The countries selected are representative of different socio-economic contexts today existing in Europe, i.e. EU member countries, countries that adopt the Euro, and others which are candidates to join the EU or that although EU members have chosen not to adopt the Euro. Finally, we also refer to the U.S. and Canada, which are country-systems where the regularity of Okun'(tm)s rule of thumb was conceived. In particular, we intend to represent the data of the macroeconomic variables GDP and unemployment rate in their annual variations for a time series sufficiently long to show the occurrence of the supposed regularity, and then to investigate specific cases, which represent changes compared to the expected variations. In addition to any changes occurred over time in the studied relationship, these empirical observations, along with the reported literature, will help to draw conclusions about the differences regarding the inflexibility and responsiveness to changes in the aggregated output by the labor market of the countries involved in the study.