NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Post-recession US Employment through the Lens of a Non-linear Okun's law

Menzie D. Chinn, Laurent Ferrara, Valérie Mignon

NBER Working Paper No. 19047
Issued in May 2013
NBER Program(s):   EFG

This paper aims at investigating the relationship between employment and GDP in the United States. We disentangle trend and cyclical employment components by estimating a non-linear Okun's law based on a smooth transition error-correction model that simultaneously accounts for long-term relationships between growth and employment and short-run instability over the business cycle. Our findings based on out-of-sample conditional forecasts show that, since the exit of the 2008-09 recession, US employment is on average around 1% below the level implied by the long run output-employment relationship, meaning that about 1.2 million of the trend employment loss cannot be attributed to the identified cyclical factors.

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Document Object Identifier (DOI): 10.3386/w19047

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