The Relationship Between Unemployment and Output in Egypt

Okun's law is a key relationship in microeconomics and finds that the relationship implies that a GDP growth by 3% leads to 1% decrease in unemployment Okun (1970). Recently, many studies find that the relationship between GDP and unemployment is not 3% as Okun's law suggests but sometimes it is between 2.5% and 2% (Samuelson and Nordhaus, 1995). This paper tests Okun's coefficient in Egypt. The paper uses co-integration analysis to estimate Okun's coefficient in the long run. and in the short run by using the Error Correction Mechanism (ECM). The analysis depends on annual data from the International Financial Statistics (IFS) published by the IMF for the period 1970-2010. When Okun's law was estimated in Egypt in the long run and short run the coefficient was statically significant with the expected sign.