Not Just For Economists

Ah, this thing, Okun's law is there for my mid-term syllabus and I couldn't locate it in any of my books or notes (I hardly have any of the latter). Hence, I looked up online. Puspen, who's introduced here and everywhere else as my best friend's boy-friend asked me how long I'd be free...here's the SMSes:

Puspen: "Does your free time end at 8pm?"

Me: "It should. But it won't. I've got some work online. Target: finish it a.s.a.p."

Puspen: "What work?"

Me: "Relation between GDP and unemployment. I can't find it in any of the books I read from, yet it's there in the syllabus...hence...get the rest"

Puspen: "that's a PhD topic!"

Me: "No. We were taught in the class. Okun's Law. I don't have the notes, that's all. It's pretty simple. What makes you think that it's a PhD topic? Everything has formulae in theory. PhD is just about showing that the formulae fail in real world"

Puspen: "Because I've always wondered why a country with the 2nd highest GDP growth has such widespread unemployment. I still can't comprehend it. I'd be happy if you could enlighten me."

Me: "1. Okun's Law states that for every 1 percentage point by which the actual unemployment rate exceeds the so-called natural rate of unemployment, the real GDP is reduced by 2.5%. This is an empirical observation, rather than a result derived from theory. It varies depending on the country and time period considered.

2. The part of the adult population that is not interested to work (or not interested to be literate enough to learn to work) is not included in the labour force. Thus they are not called 'unemployed'. An unemployed person is one who has been looking for work for the past four weeks from the time considered. (Strict definition)

3. Government policies are not made keeping economics in view. They're aimed at popularity, hence they deviate normal economic theories. The Minimum Wage Law ensures a price of labour (wage) which is well above the market equilibrium price. Since firms do not agree to pay the higher price of labour, they reduce the number of hired labourers, thus generating unemployment. (British Council has this book on how the minimum wage laws harm us. I'll get it if you want)
4. The country with the 2nd highest GDP is Japan. India has the 10th highest GDP. And India and Japan have same unemployment rates according to unstats.un.org (updated on June 2007)"

Puspen: "I think I stated India has the highest GDP growth."

Me: "Here's what you said-'Because I've always wondered why a country with the 2nd highest GDP growth has such widespread unemployment. I still can't comprehend it. I'd be happy if you could enlighten me.'"

Puspen: " Ya. GDP growth. Not GDP."

Me: "You shouldn't have. In terms of GDP growth rate, India ranks 22nd in the world; according to www.nationmaster.com/graph/eco_gdp_rea_gro_rat-economy-gdp-real-growth-rate"

Puspen: "My God!"

P.S.- Puspen is pursuing MBBS at SSKM Hospital. Since I had this discussion with a doctor-to-be, I might have taken advantage of his ignorance and used wrong terminology. Hence, corrections are welcome...

About you, you'll re-ascertain my 'aantelami'; so, I hope you won't read it...:P