Beyond GDP: Is Okun's Law still t?

Abstract

This paper challenges the role of GDP, as a measure of economic activity, in the regu- larity and universality of Okun's Law. Numerous empirical studies verify the stability and robustness of Okukn's law, despite quantitative and methodological discrepancies. At the same time, a large body of the literature is exposing the limitations of GDP as a measure of economic welfare or di erent aspects of economic activity. Our paper ques- tions whether and to what extent Okuns law empirical regularity is `GDP-contingent'. Is the \Law" as stable when a di erent measure is used? Our work draws on adjusted disposable income to answer that. We demonstrate that, over a three decade span and for more than 20 OECD countries, the stylised fact described by Okun law is less ro- bust and stable when GDP is substituted by adjusted disposable income: for a subset of countries in our sample, the relationship turns insigni cant or even positive. This apparently broken, for being GDP contingent, relationship opens a broad discussion with diverse implications regarding economic policies and their socioeconomic impact.