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Working Paper
A State-Level Analysis of Okun’s Law
Okun?s law is an empirical relationship that measures the correlation between the deviation of the unemployment rate from its natural rate and the deviation of output growth from its potential. In this paper, we estimate Okun?s coefficients for each U.S. state and examine the potential factors that explain the heterogeneity of the estimated Okun relationships. We find that indicators of more flexible labor markets (higher levels of education achievement in the population, lower rate of unionization, and a higher share of nonmanufacturing employment) are important determinants of the ...