Glamor Economics

Chapter 185

Chapter 23 Section 4 Will the Unemployment Rate Fall as Economic Growth——Oun's Law

The famous American Keynesian economist Arthur?Okun discovered the relationship between economic growth rate and unemployment rate in cyclical fluctuations, that is, when actual GDP growth relative to potential GDP growth (generally defined as 3% in the United States) fell by 2%, the unemployment rate rose by about 1%; When real GDP growth rises 2 percent relative to potential GDP growth, the unemployment rate falls by about 1 percent.If the actual GDP growth rate exceeds the potential GDP growth rate by 2%, the unemployment rate can be lower than the natural unemployment rate by 1%, that is, the ratio between the unemployment rate and the real GDP growth rate gap is 1:2.This rule of thumb, named after its discoverer, is known as Okun's Law.

An important conclusion of Okun's Law is that to prevent unemployment from rising, real GDP must grow as fast as potential GDP.If unemployment is to fall, real GDP must grow faster than potential GDP.Therefore, the choice before the government is to maintain the high-speed growth of GDP.In this way, on the one hand, it can rapidly improve the living standards of our people, and on the other hand, it can better solve the future employment pressure.

To study the relationship between actual GDP growth and changes in the unemployment rate, it must be determined based on whether actual GDP growth is faster or slower than potential GDP growth, and how much faster or slower. It must not be based on actual GDP growth alone, regardless of potential GDP growth.

It is worth noting that the specific quantitative relationship between economic growth and unemployment proposed by Okun is only a description of the U.S. economy, and it is a description of a specific period of history. The economy may not continue to operate on its original trajectory.Therefore, the significance of Okun's law lies in revealing the relationship between economic growth and employment growth, not in the specific values ​​it provides.

As the economy grows, the employment rate falls, which is a common law in all countries in the world.However, this rule does not seem to work in China today. When China's economy grows, the unemployment rate also increases.According to the data released by the National Bureau of Statistics, from 1985 to 1990, the average annual growth rate of the national GDP was 7.89%, and the average annual growth rate of the employed population was 2.61%; from 1991 to 1995, the average annual growth rate of the national GDP was 11.56%, and the The average annual growth rate of the employed population was 1.23%. From 1996 to 1999, the average annual growth rate of the national GDP was 8.30%, and the average annual growth rate of the employed population was 0.96%.In recent years, my country's economy has grown rapidly, but at the same time, the registered unemployment rate remains high.It can be seen that the employment growth rate in my country has not increased simultaneously with the GDP growth rate, but has decreased significantly.Why does Okun's law, which has been widely proven by practice at home and abroad, fail in China?

Some people believe that while the economy is growing rapidly, many places are constantly optimizing their industrial structure, and capital and technology-intensive enterprises have replaced traditional labor-intensive enterprises.In fact, according to the normal law, the replacement of traditional labor-intensive industries by capital and technology-intensive industries will inevitably promote the development of another labor-intensive industry—the tertiary industry.However, China's tertiary industry is not well developed.There are explanations for this: First, although the economy has grown, the income of ordinary people has not risen accordingly, so domestic demand cannot be activated, and the tertiary industry cannot develop; second, although the tertiary industry has developed, the labor conditions of the tertiary industry And labor rights are too poor, laborers have long working hours and high work intensity, and labor-intensive industries have become "super-long working hours industries", which naturally cannot absorb too many employees.

Some data show that in the process of my country's economic growth, the unemployment rate is also increasing, the proportion of total national wages in GDP has been decreasing year by year, while the proportion of taxation in GDP has been increasing year by year. This phenomenon has produced very harmful negative effects: both large-scale It damages the basic rights of workers, restricts the increase of normal employment opportunities, and damages the people's livelihood, thereby reducing the domestic demand driving force for economic development.

Now, we must re-examine the purpose of economic growth: Is economic growth aimed at improving the welfare of the people, or is it for the increase in GDP and taxation figures?Does economic growth bring harmony between man and nature, and between man and man, or does it exacerbate the gap between rich and poor, and the tension between man and resources, the environment, and society?If it is the former, the legitimacy of economic growth will be resolved; if it is the latter, economic growth will be unjust, and not only cannot solve the problems encountered in social development, but will create more environmental and economic problems , social and even political issues.

[links to related words]

Okun's Law Unemployment means underutilization of factors of production. The rise of unemployment rate will be accompanied by the decline of real GDP. The empirical law describing the relationship between unemployment rate and GDP is called Okun's Law.

(End of this chapter)