The correlation between unemployment and economic growth in Latin America – Okun's law estimates by country

Abstract

The authors question the validity of Okun's law in Latin America in this paper. Based on several econometric models, they show that fluctuations in economic activity have a lesser impact on unemployment rates in Latin American countries than in other, more advanced economies. Instead of stimulus policies focused on reducing unemployment in general, these countries need targeted policies that encourage job creation in specific sectors. That being said, the unemployment—output ratio differs from one Latin American country to another. Where the ratio is weak or non-existent, cyclical variations adversely affect the quality of employment – another aspect that must also be addressed by economic policy.