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<p>Okun’s law (negative relationship between unemployment and output) has not been effectively operating in India during post 2000s where higher output growth (7%) coincided with higher unemployment, except slight fall in recent years. Recent Literature on this nexus shows that for Okun’s law to operate, first economy shall be operating in ‘high effort’ state and at the same time unemployment rate shall be above threshold level. This study has examined the relationship between unemployment rate and output growth under non-linear framework in India and estimated threshold levels. Study used time series data during 1981–2022 and applied FMOLS and CCR models for estimation. The results revealed that there exists a non-linear relationship between unemployment and output with threshold levels. For Okun’ law to operate in India, first economy shall operate in ‘high effort’ state, i.e. unemployment rate shall be above threshold of 5.1% and per-capita output growth should be above threshold level of 4.2%. The policy should focus on reducing these two threshold levels by scaling-up worker’s skill and productivities and focus on growth of labour intensive sectors like MSMEs in order to be able to reduce unemployment rate even at lower levels of economic growth.</p>

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When does growth reduce unemployment in India? threshold effects in the growth–unemployment nexus

  • 期刊论文

  • 发表日期：

    2026年1月2日

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  • Aamir Ahmad Teeli,
  • Ch.Sankar Rao

摘要

Okun’s law (negative relationship between unemployment and output) has not been effectively operating in India during post 2000s where higher output growth (7%) coincided with higher unemployment, except slight fall in recent years. Recent Literature on this nexus shows that for Okun’s law to operate, first economy shall be operating in ‘high effort’ state and at the same time unemployment rate shall be above threshold level. This study has examined the relationship between unemployment rate and output growth under non-linear framework in India and estimated threshold levels. Study used time series data during 1981–2022 and applied FMOLS and CCR models for estimation. The results revealed that there exists a non-linear relationship between unemployment and output with threshold levels. For Okun’ law to operate in India, first economy shall operate in ‘high effort’ state, i.e. unemployment rate shall be above threshold of 5.1% and per-capita output growth should be above threshold level of 4.2%. The policy should focus on reducing these two threshold levels by scaling-up worker’s skill and productivities and focus on growth of labour intensive sectors like MSMEs in order to be able to reduce unemployment rate even at lower levels of economic growth.