The objective of this work is to analyze the existing relation between employment, unemployment and production, by means of the estimation of the Okun coefficient for the Peruvian Economy. A previous step consists in the estimation of the employment-production elasticity. Both parameters are important elements for macroeconomic policy design, and the evaluation of its effects on employment and welfare. Based on a cointegration analysis we find a positive long-term relation between the employment rate and Lima's GDP throughout the period, where the employment rate rises in 0.0288 percentage points for a rise of 1000 nuevos soles of 1979. We also estimate an Okun coefficient of 0.0845, its low value is only comparable with those of Japan, Bolivia and Argentina. In Peru's case, the reason for this low coefficient can be found in the procyclical behavior of the labor force, and in the fact that workers retire from the labor market when they lose their post. We also find that the rate of growth of the GDP must be at least of 3.31% in order to keep the unemployment rate from rising, and of about 11% to lower the unemployment rate in one point. Finally, we estimate recursive Okun coefficients based on the cyclical components of the series, which gives us a range between 0.02 and 0.12 for the whole period.
