The Review of Economics and Statistics Vol. 63 No. 1 1981
Capital Utilization and Okun's Law: A Reply
Abstract
Even if You's method for accounting for capital employment could be successfully implemented, his claim that his results support Okun's original estimate of the link between unemployment and the GNP gap would be incorrect. His claim of support for a three to one link between the employment ratio and output gap results from a failure to distinguish the response of real GNP and of PBS output to a change in the employment ratio. When his estimates are corrected for this, the results are in line with the significantly smaller link which others have recently observed. An alternative method of including capital in the production function-used by Rasche and Tatom (1977), among others-indicates that the Federal Reserve Board index of capacity utilization is an adequate measure of the capital employment ratio. Tatom (1980) has shown that the capital-labor ratio is procyclical in the context of this approach-a claim made by You, but not supportable by his analysis.
- DOI
- 10.2307/1924237
- Volume
- 63
- Issue
- 1
- Pages
- 158
- Sources
- openalex crossref