Wednesday, January 14, 2009
Okun's Law--Lessons From the Depression
I've plotted the data from 1934 to 1942 and derived a linear regression line to show the length of time it will take for long term unemployment to decline. I believe this recession mirrors the great depression so I've been researching the data from the 1930's. When a worker becomes unemployed, she loses valuable job skills that makes the worker even more unemployable. According to my graph, it'll take a long time at high growth to reduce the unemployment rate. (Examine the top graph)
Okun law resembles the bottom graph where dUn=-.4(g - 3) where the change in unemployment equals -.4 the GDP deviation from the normal 3% growth.