THE UNEMPLOYMENT-OUTPUT TRADEOFF IN CHINA: EMPIRCAL TEST FOR THE APPLICABILITY OF OKUN’S LAW

Okun’s law is a macroeconomic relationship that describes the relationship between output and unemployment. Initial empirical estimates for US data indicate that a two to three percent GDP growth rate above the natural or average GDP growth rate causes unemployment to decrease by one percentage point and vice versa. China is undoubtedly the most dynamic economy in the world today, but high growth along with high unemployment exists in China for a long time. Noticing this strange phenomenon, the authors attempt to conduct empirical research to reveal the relationship between China’s economic growth and unemployment rate. And we draw a conclusion that Okun’s law fails in China. Under the condition of China’s dual economy, Okun's law need to broaden the basic assumptions. Only combining with the special situation, can they better explain the economic situation in China.