Can the asymmetry of Okun's law be interpreted from a social perspective? Evidence from the World Bank

Abstract

Okun's law is generally interpreted in economic terms. This paper is interpreted from a social perspective through regression and mediating effect models. Okun's law is demonstrated based on data from the World Development Indicators (WDI) dataset. There is indeed a relationship between unemployment and economic growth, with unemployment negatively affecting economic growth after controlling for the two-way causality problem. This result remains robust after replacing the core explanatory variables. This paper interprets the asymmetry of Okun's law from a social perspective, using alcohol consumption as a mediating variable to measure the harm caused by unemployment to the unemployed. Analysis of the data reveals that alcohol consumption mediates between unemployment and economic growth. Unemployment increases alcohol consumption, which causes incurable harm to the unemployed. It reduces the willingness and probability of the unemployed to re-employ and further reduces the potential for economic growth. This is why the economic expansion did not lead to employment growth, revealing the asymmetry of Okun's law. The gender-specific heterogeneity analysis found that the impact of unemployment on economic growth did not vary much by gender.