Talks about the relationship of Okun law and Phillip curve by taking UK's data in account.

1. PRESENTATION ON PHILIP’S
CURVE AND OKUN’S LAW
Presented by:
Hareem Syed
&
Iffrah Akhtar

2.  Understand relationships among output,
unemployment, and inflation.
 United Kingdom the sixth-largest national
economy in the world measured by nominal GDP.
 When studying economy it is important to examine
the relationship between the level of output and
unemployment and price and unemployment.
INTRODUCTION

3. DEFINITIONS

4. PHILLIP CURVE
 The Phillips curve shows the relationship between
unemployment and inflation in an economy.
 Founder Alban William Phillips
 In 1958, AW Phillips plotted 95 years of data of UK wage
inflation against unemployment.
 It seemed to suggest a short-run trade-off between
unemployment and inflation.

5. OKUN’S LAW BY ARTHUR OKUN (1960S)
 This law describes a negative relationship between
GDP and unemployment.
 Explanation according to FRB of St Louis
 The following equation illustrates how there exists a
negative relationship between output and
unemployment:
 Total employment= Labor Force - unemployed

6. UNDERSTANDING THE NEGATIVE RELATIONSHIP
 Originally Okun stated that the economy experienced a 1 percentage
point increase in unemployment for every 3 percentage point
decrease in actual GDP.
 In order to understand why the relationship between unemployment
and output is not one to one, its important to keep associated factors
in mind such as.
 Changes in the number of hours worked per person.
 Changes in labor productivity.

7. TWO VERSIONS OF OKUN’S LAW

8. -6
-4
-2
0
2
4
6
8
0
2
4
6
8
10
12
14
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
unemployment
Okun's law
unemploym
GDP

9.  Data from years 1980 to 2012
 Green line represents GDP
 Red line represents unemployment
 Unemployment rates and GDP fluctuations

10. ANALYSIS
 Graphical analysis to further explain the
relationship may it be positive or negative.
 Data from 1980 to 1983- positive relationship
 Data from 1986 to 1990-positive relationship
 Reason Employment Protection Legislation

11. WHY POSITIVE?
 At times GDP and unemployment rates usually go together.
 Such a relationship between GDP and unemployment rates
is important in two ways.

12. ANALYSIS
 Data from 1996 to 2006 – negative relationship:
unemployment falling, GDP increasing.
 Reason: multiplier effect.
 Data from 2010 to 2011- negative relationship:
unemployment increase, GDP falling.

13. CONCLUSION OF OKUN’S LAW

14. -5
0
5
10
15
20
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
unemployment
Inflation

15. PHILLIP CURVE ANALYSIS
 Graph represents Phillip Curve of UK
 Data from 1980-2012
 Red line represents unemployment
 blue line represents inflation

16. ANALYSIS
 From 1980-1981 shows a trade off between inflation and
unemployment.
 From 1982-1988, unemployment is greater than inflation.
 From 1988-2008 inflation and unemployment are moving
at steady level.

17. Conclusion of Philips Law