Abstract
The aim of this paper is to investigate the relationship between unemployment and economic growth in the European Union and in individual European countries. This allows to determine what the effect on the unemployment rate will be when there is a change in output. The European Union (28 countries) quarterly data used is for the period from 2000Q1 to 2017Q3. Regression analysis, co-integration analysis and a vector error correction model have also been used. The relationship between the unemployment rate and economic growth in the EU-28 for the period examined in this study is less pronounced in comparison with the other countries. A negative relationship between economic growth and a change in the unemployment rate is obtained for all the countries in the European Union (28 countries). During each stage of the period studied, the effect of hysteresis on the labour market grew. The results from the statistical analysis show that the data on economic growth and the change in the rate of unemployment in the EU-28 are co-integrated. The validity of Okun's Law for the economy of the European Union is confirmed although during the period studied the European economy went through several phases of the economic cycle.
Highlights
The problems related to the dependencies that exist between unemployment and economic growth are of great significance to every macroeconomic policy
The main aim of this paper is to investigate the relationship between unemployment and economic growth at the level of the European Union as well as the individual national economies
The study begins by examining the dynamics of the real gross domestic product (GDP) and the rate of unemployment with quarterly data on the European economy for the period 2000Q1–2017Q3 being used in the process
Summary
The problems related to the dependencies that exist between unemployment and economic growth are of great significance to every macroeconomic policy. One of the main objectives of the macroeconomic policies implemented is the achievement of stable economic growth and a decrease in the unemployment rates of the individual countries and the European economy. Okun’s Law expresses the negative relationship between the deviation of the current output from the real output on the one hand, and, on the other hand, the deviation of the actual rate of unemployment from its natural rate The existence of this relationship was empirically established by Okun (1962) for the economy of the USA, which, during the time period investigated, was characterised by a stable and upward development as well as. After this relationship was derived, it became a standard tool for developing macroeconomic policies and forecasts. Various studies (Schnabel, 2002; Daly et al, 2014) show that the specific quantitative relationship between the changes in output and the rate of unemployment varies considerably over time and during the different phases of the economic cycle
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