COVID-19 and the Okun’s law: the case of Ghana¹

The Covid 19 pandemic was a strong shock that plummeted into the entire interconnected economic activities of the world. As a result of the lockdown associated with the pandemic, the economies of the world were affected through restrictions like lockdown leading to the reduction of economic indicators like Gross Domestic Product (GDP) and increase in Unemployment. This paper set out to look at the relationship between the GDP and unemployment in Ghana in the periods prior and during the covid pandemic. The Autoregressive Distributed Lag (ARDL) model was used on data from 1991 to 2021. The result shows the nonexistence of the Okun’s law in Ghana in each of these periods. We conclude by advising policy makers to implement policies that directly generate more jobs like improvement in the agriculture sector through training and financial support to enable increased employment to match the increase in economic growth. Studies on the impact of GDP growth on unemployment indicate a negative relationship between them. This relation is formulated as the Okun’s law in the economic literature. According to Arthur Okun, a percentage increase in real GDP growth above the trend decreases the rate of unemployment by 0.5% using three different models on data from the US economy. This law is important when it comes to the decision making on key macroeconomic policies such as dealing with economic growth, unemployment, and improvement in employment. This study set out to check the existence of the law in Ghana before and after the Covid 19 pandemic. The findings of the study indicate no existence of the law in Ghana due to the mismatch between job creating sectors and the sectors steering economic growth. We advise policy makers to improve sectors like agriculture through training and financial support to enable increased employment to match the increase in economic growth.