Okun's Law Case Study

Unemployment is defined as a situation where someone that is not able to get a job but is in its working age and somehow would like to be as a full time employee (Pettinger, 2010). This means that a person is considering as an unemployed when they are not working but eligible and is seeking for a job. Whereas an unemployment rate is an indicator of the labor market behavior and measurement of the state of an economy in that particular country (Byrne and Strobl, 2001). Unemployment is a very important macroeconomic variable in every country not just in Japan. It correlates with the economic growth where it may cause problems regardless of the level of economic development of that particular country. This is where the stress on the Okun’s Law started.

The correlation of unemployment and economic growth was first discovered by Okun in year 1962 thus introduced Okun’s Law. It is stated that the relationship of economic growth and unemployment is differ depending on the sample and the context explored (Özel et al., 2013). According to Harris and Silverstone (2001), Okun’s law is a concept of macroeconomics based on

For example, in a situation where the normal unemployment rate is 5%, then if the unemployment rates suddenly increase to 8%, together with the condition on there is a worker who desires a job but cannot obtain one, at the high unemployment rates like that may cause little trouble in finding a workers to work at the prevailing wage. However, Kaplan (1999) also state that as economic growth accelerates, the labor surplus diminishes as more workers are hires, and then only the unemployment rate falls. This means that the only way to decrease unemployment rate is to have a consistently with the full employment so that the economic can growth stronger (Kaplan,