Okun and Jamaica at 50: How Does Unemployment React to Growth?

Dec 2013
Jamaica is projected to exit a prolonged recession that has left deep scars in the socioeconomic conditions of the country. Besides increasing macroeconomic vulnerabilities and halting economic growth, advances in poverty and unemployment were reversed. Unemployment bottomed in 2009 at 9.5 percent but increased over the following years until reaching more than 16 percent by April 2013, and poverty increased from 9.9 percent in 2007 to 17.6 percent in 2010. Following the literature on Okun's rule of thumb, we explore how the projected recovery will be reflected in the labor market. Results indicate that there is an association between GDP growth and unemployment - a 1 percent growth in GDP results in a 0.3 percent reduction in unemployment. These values indicate that under current growth projections, unemployment in Jamaica will remain above the psychologically important threshold of 10 percent for several years.