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Ryan W Herzog
''An Analysis of Okun's Law, the Natural Rate, and Voting Preferences for the 50 States''
( 2013, Vol. 33 No.4 )
In this paper we test Okun's Law for individuals states from 1990 through 2012. We find the relationship between output and unemployment becomes stronger following the 2007 Great Recession. For most states the impact of a change in output on unemployment has increased and in many cases the two-to-one relationship has shifted to a three-to-two relationship. Further, we also find for most states the natural rate of unemployment has increased. We use average employment ratios by major industries to explain differences in Okun's Law across states. We find a stronger Okun effect for states with relatively large employment in professional and business services, construction, and manufacturing. Finally, we find a significant correlation between states that lean more Democrat with a stronger Okun effect.
Keywords: Okun's Law, United States, Natural Rate, Output, Regional
JEL: E3 - Prices, Business Fluctuations, and Cycles: General (includes Measurement and Data)
R1 - General Regional Economics (includes Regional Data)
Manuscript Received : Jul 12 2013 Manuscript Accepted : Oct 04 2013

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