The link between unemployment rate and real output in Eurozone: A panel error correction approach

Abstract

In this paper we investigate the relationship between economic growth andunemployment in Eurozone through the implementation of Okun's Law using annual panel dataset covering the time period 2000-2012. Panel error correction and panel co-integration methods are used to test the linkage between unemployment and growth rate. We also investigate unemployment hysteresis using several non-stationary panel unit root techniques for unemployment hysteresis in all Euroregions. Findings suggest that Okun's Law is valid but coefficients are less thanOkun's coefficient for USA and other empirical studies on developed countries. Also we find that the relationship between economic growth rate and unemployment rate vary between countries.