The relationship between production and unemployment in Japan: Okun's law in comparative perspective

This paper studies the question whether the celebrated ‘Okun's law’, a relation between excess capacity and unemployment, applies to the postwar Japanese economy. Though the fitness of estimation is weak, the coefficient that measures the responsiveness of the output gap to the unemployment rate is very large, reaching 28. This large coefficient can be attributed to the elastic response in the female participation ratio, to flexible working hours, to the slow adjustment in employment, and to changes in industrial structures. The results are compared with those in the United States.