Abstract For 38 OECD countries during the period 1991–2022, the paper estimates time-varying trajectories of unemployment-based and employment-based Okun coefficients and studies their synchronicity. Schlicht’s VC method is utilized to estimate Okun coefficients and time-series clustering is applied to identify groups of economies with synchronous business cycle characteristics. The findings defy two prevalent beliefs of Okun’s law since many countries display constant or almost constant trajectories of the (un)employment-output sensitivity, and for many countries Okun’s law need not be stronger in a downturn. Furthermore, countries do not synchronize in their business cycle dynamics as shown in disparate trajectories of Okun coefficients, which argues against a single one-size-fits-all stabilization policy, certainly in less homogeneous economic blocks. Finally, there is strong evidence for labour market flows into and outside the labour force that are associated with informal sector size and translated into lesser sensitivity of official labour market variables across the business cycle.
Boďa et al. (Mon,) studied this question.