<p>Well it seems like you are observing somthing consistent with  <a href="https://en.wikipedia.org/wiki/Okun%27s_law" rel="nofollow noreferrer">Okun's Law</a> which reveals empirically negative relationship between Unemployment and GDP.</p>

<p>As <a href="https://www.researchgate.net/profile/Donald_Freeman" rel="nofollow noreferrer">Donald Freeman</a> states in the conclusion to his paper titled paper <a href="https://www.researchgate.net/profile/Donald_Freeman/publication/225116273_Regional_tests_of_Okun%27s_law/links/00b4952924dbedfc2c000000.pdf" rel="nofollow noreferrer"><em>Regional tests of Okun's law</em></a></p>

<blockquote>
  <p>Okun's law is one of the more enduring stylistic facts of U.S. macroeconomics, having
  withstood numerous tests in the almost four decades since it was first promulgated by
  Arthur Okun.</p>
</blockquote>

CC BY-SA 3.0
2017-12-21T07:10:24.220Z
From the Wikipedia page you linked: "The stability and usefulness of the law has been disputed."
Giskard
CC BY-SA 3.0
2017-12-21T12:47:25.417Z
You might be interested in [this new question](https://economics.stackexchange.com/questions/19794/predict-unemployment-with-okuns-law) by the same user.
Giskard
CC BY-SA 3.0
2017-12-21T17:24:29.050Z
@denesp Much like how gravitational pull differs around the world so too Okun's law differs based on region. though the exact estimates vary, a counter cyclical relationship is maintained between Unemployment Rate and GDP growth.
EconJohn
CC BY-SA 3.0
2017-12-21T03:59:15.467Z
2017-12-21T03:59:15.467Z
EconJohn
<p>GDP might be thought of as a product of several factors:</p>

<ul>
<li>Labour productivity (gross value added per hour worked)</li>
<li>Working time (hours worked each year per worker)</li>
<li>Employment rate (proportion of working-age population in work) </li>
<li>Age demographics (working-age proportion of population)</li>
<li>Total population</li>
</ul>

<p>If you have $E$ working-age people in employment, $U$ unemployed but looking for work and $I$ inactive so neither working nor looking for work, then the employment rate $\frac{E}{E+U+I}$ and unemployment rate $\frac{U}{E+U}$ are related and tend to move in opposite directions</p>

<p>So if other things remain equal (which they do not), an increase in the unemployment rate can be associated with a reduction in the employment rate and a reduction in GDP, and similarly in the opposite direction.  This says nothing about causality either way</p>

<p>The point about unemployment being a lagging indicator is that, in some business cycles, employers may sometimes respond to immediate reductions in demand by reducing working time or productivity before they move to dismissing workers, as they do not yet know whether the demand reduction is short-term or medium-term and they want to be able to respond to any quick recovery. This would be an example of other things not remaining equal  </p>

CC BY-SA 3.0
2017-12-20T11:27:17.713Z
2017-12-20T11:27:17.713Z
Henry
<p>I have studied the development of the difference in unemployment and the difference in the growth of real GDP in the Netherlands over the years 1963-2016. <a href="https://i.sstatic.net/TRm8E.png" rel="nofollow noreferrer"><img src="https://i.sstatic.net/TRm8E.png" alt="enter image description here"></a></p>

<p>From the picture it seems like a change in unemployment has a positive effect/predicts a change in GDP growth. How is this possible? Has this to do with the fact that unemployment is a lagging variable?  </p>

CC BY-SA 3.0
2017-12-20T12:15:29.390Z
"From the picture it seems..." Unfortunately all that glitters is not gold. To be frank in my opinion this does not even glitter, the two trajectories seem almost independent.
Giskard
CC BY-SA 3.0
2017-12-21T03:59:58.293Z
@denesp I see you're not a fan of Okun's Law.
EconJohn
CC BY-SA 3.0
2017-12-21T07:07:38.683Z
@EconJohn I am not a fan of the law of gravity either if the data does not fit.
Giskard
CC BY-SA 3.0
2017-12-21T17:25:27.403Z
@denesp well you may have issues with the variation that exists with gravity around the world. i.e: https://en.wikipedia.org/wiki/Gravity_of_Earth#Variation_in_gravity_and_apparent_gravity
EconJohn
<gdp><time-series><unemployment>
Relation $\Delta Unemployment$ and $\Delta GDPgrowth$
Cardinal
# Relation $\Delta Unemployment$ and $\Delta GDPgrowth$

(Asked by: username_0 on 2017-12-20)

I have studied the development of the difference in unemployment and the difference in the growth of real GDP in the Netherlands over the years 1963-2016. [![enter image description here](https://i.sstatic.net/TRm8E.png)](https://i.sstatic.net/TRm8E.png)

From the picture it seems like a change in unemployment has a positive effect/predicts a change in GDP growth. How is this possible? Has this to do with the fact that unemployment is a lagging variable?

**Tags:** gdp, time-series, unemployment

> **Comments:**
> **username_1**: "From the picture it seems..." Unfortunately all that glitters is not gold. To be frank in my opinion this does not even glitter, the two trajectories seem almost independent.  
> **username_2**: @denesp I see you're not a fan of Okun's Law.  
> **username_1**: @username_2 I am not a fan of the law of gravity either if the data does not fit.  
> **username_2**: @denesp well you may have issues with the variation that exists with gravity around the world. i.e: https://en.wikipedia.org/wiki/Gravity_of_Earth#Variation_in_gravity_and_apparent_gravity  

---

## 2 answers

### Answer by username_2 on 2017-12-21. Score: 1 | Accepted answer

Well it seems like you are observing somthing consistent with [Okun's Law](https://en.wikipedia.org/wiki/Okun%27s_law) which reveals empirically negative relationship between Unemployment and GDP.

As [Donald Freeman](https://www.researchgate.net/profile/Donald_Freeman) states in the conclusion to his paper titled paper [*Regional tests of Okun's law*](https://www.researchgate.net/profile/Donald_Freeman/publication/225116273_Regional_tests_of_Okun%27s_law/links/00b4952924dbedfc2c000000.pdf)

> Okun's law is one of the more enduring stylistic facts of U.S. macroeconomics, having
> withstood numerous tests in the almost four decades since it was first promulgated by
> Arthur Okun.

> **Comments:**
> **username_1**: From the Wikipedia page you linked: "The stability and usefulness of the law has been disputed."  
> **username_1**: You might be interested in [this new question](https://economics.stackexchange.com/questions/19794/predict-unemployment-with-okuns-law) by the same user.  
> **username_2**: @denesp Much like how gravitational pull differs around the world so too Okun's law differs based on region. though the exact estimates vary, a counter cyclical relationship is maintained between Unemployment Rate and GDP growth.  

---

### Answer by username_3 on 2017-12-20. Score: 1

GDP might be thought of as a product of several factors:

* Labour productivity (gross value added per hour worked)
* Working time (hours worked each year per worker)
* Employment rate (proportion of working-age population in work)
* Age demographics (working-age proportion of population)
* Total population

If you have $E$ working-age people in employment, $U$ unemployed but looking for work and $I$ inactive so neither working nor looking for work, then the employment rate $\frac{E}{E+U+I}$ and unemployment rate $\frac{U}{E+U}$ are related and tend to move in opposite directions

So if other things remain equal (which they do not), an increase in the unemployment rate can be associated with a reduction in the employment rate and a reduction in GDP, and similarly in the opposite direction. This says nothing about causality either way

The point about unemployment being a lagging indicator is that, in some business cycles, employers may sometimes respond to immediate reductions in demand by reducing working time or productivity before they move to dismissing workers, as they do not yet know whether the demand reduction is short-term or medium-term and they want to be able to respond to any quick recovery. This would be an example of other things not remaining equal


---

