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Okun's law is an empirical relationship. In Okun's original statement of his law, a 2% increase in output corresponds to a 1% decline in the rate of cyclical unemployment; a 0.5% increase in labor force participation; a 0.5% increase in hours worked per employee; and a 1% increase in output per hours worked (labor productivity).
A major one is that money wages are set by bilateral negotiations under partial bilateral monopoly: as the unemployment rate rises, all else constant worker bargaining power falls, so that workers are less able to increase their wages in the face of employer resistance.
Then all firms try to eliminate shirking, which pushes up average wages and decreases employment. Hence nominal wages tend to display downward rigidity. In equilibrium, all firms pay the same wage above market clearing, and unemployment makes job loss costly, and so unemployment serves as a worker-discipline device. [3]
Since there is no increase in labor productivity in sector one, the output of sector one at time (denoted ) is: Y 1 t = a L 1 t {\displaystyle Y_{1t}=aL_{1t}} where L 1 t {\displaystyle L_{1t}} is the quantity of labor employed in sector one and a {\displaystyle a} is a constant that can be thought of as the amount of output each worker can ...
Initial claims for state unemployment benefits dropped 22,000 to a seasonally adjusted 220,000 for the week ended Dec. 14, the Labor Department said. Economists polled by Reuters had forecast ...
The fluctuations in wages are almost the same as in the level of employment (wage cycle lags one period behind the employment cycle), for when the economy is at high employment, workers are able to demand rises in wages, whereas in periods of high unemployment, wages tend to fall. According to Goodwin, when unemployment and business profits ...
Unemployment claims fall. Initial claims for unemployment benefits fell to 213,000 during the week ending February 8, up from 220,000 the week prior. This metric continues to be at levels ...
Initial claims for state unemployment benefits dropped 10,000 to a seasonally adjusted 222,000 for the week ended May 11, the Labor Department said. Economists polled by Reuters had forecast ...