Okun's law: Turkey case

Abstract

The concepts of unemployment and economic growth, which have an important position in macroeconomic issues, are dynamic and are issues that are always on the agenda in every economic point. In addition to economic growth and increasing production, there is a desire to create jobs and reduce unemployment. Today, however, unemployment is not decreasing despite economic growth. There is a difference between the literature and today's economic situation. Long-term and more sustainable economic growth is needed rather than short-term to reduce unemployment or increase employment. Therefore, unemployment is seen to be a broader, more complex, and more critical issue in terms of its policies and effects. While economic growth can be achieved through structural policies such as investments, and demand-increasing real wage growth, unemployment is not a problem that can only be solved by structural policies that increase economic growth. This is because there is a socio-cultural dimension as well as the economic dimension of the unemployment problem. Economic growth and unemployment are always up-to-date in all economies. Especially after the Second World War, the importance of this relationship increased. This study, which later entered the literature as the Okun's Law, examined data on the U.S. economy between 1948 and 1960. The study concluded that there was a negative correlation between economic growth and unemployment. In other words, an increase in real GDP reduces unemployment. In this study, the relationship between economic growth and unemployment for the Turkish economy is investigated. As a result of the analysis, which was based on annual data from 1980 to 2016, an increase of 1% in economic growth reduces unemployment by 0.11%. In other words, this is the result of the validity of the Law of The Okun in Turkey. However, the inability of growth to adequately reduce unemployment is the basis for unemployment problems. In this context, the growth policies determined by governments will contribute to minimizing this problem by encouraging employment. © Peter Lang AG 2020.